#7月CPI符合预期通胀继续降温 July CPI in line with expectations, inflation continues to cool — structural divergence behind the data and policy implications

Data released by the National Bureau of Statistics on August 9 showed that the national Consumer Price Index (CPI) rose 0.5% year on year and fell 0.1% month on month in July 2026. The data was broadly in line with previous market expectations — the average forecast from Caixin’s survey of 11 institutions was 0.8%, while Wind’s survey of 18 institutions showed an average forecast of 0.8%. Although the actual reading was slightly below the midpoint of expectations, it remained within the forecast range of 0.5% to 1.1%, at the lower end.

The year-on-year increase fell 0.5 percentage points from the previous month, dropping below 1% for the first time since February this year. Month on month, CPI fell 0.1%, with the decline narrowing by 0.2 percentage points from the previous month. The continued cooling trend in inflation has been confirmed, but the data reveals clear structural divergence that merits closer analysis.

I. Falling oil prices were the primary driver of lower CPI

The core reason for the July CPI decline was the fading impact of imported energy-price shocks. Dong Lijuan, chief statistician of the NBS Department of Urban Surveys, explicitly noted that the year-on-year CPI slowdown was “mainly affected by the slower increase in gasoline prices.” Gasoline prices rose 1.0% year on year in July, with the increase falling sharply by 16.0 percentage points from the previous month. Their upward impact on CPI decreased by approximately 0.45 percentage points from the previous month, bringing the increase in energy prices down to 0.6%.

On a month-on-month basis, fluctuations in international market prices caused domestic gasoline prices to fall 10.7%, with the decline widening by 5.8 percentage points from the previous month and directly lowering month-on-month CPI by approximately 0.35 percentage points. An Everbright Securities research report also confirmed that the decline in gasoline prices was the main reason for the lower year-on-year CPI growth in July.

This reflects the retreat of imported inflation. As tensions between the United States and Iran eased and the center of international oil prices moved lower, the imported inflationary pressure that had persisted for several months eased significantly. Kaiyuan Securities pointed out that the center of crude oil prices had already fallen from its peak in June, weakening their upward impact on CPI, while domestic gasoline prices underwent a lagged adjustment in July.

II. Core CPI remains resilient, and domestic demand is not broadly weak

Although overall CPI weakened, core CPI remained relatively stable, making it the most notable signal in the July inflation data.

Core CPI, excluding food and energy prices, rose 0.9% year on year and 0.3% month on month in July. The month-on-month growth rate was level with the average for the same period over the past five years, showing that core inflation has not lost momentum. Core CPI fell only 0.1 percentage points year on year from the previous month, far less than the 0.5-percentage-point decline in overall CPI.

The resilience of core CPI mainly came from support from services consumption. July coincided with the peak summer travel season, and service prices shifted from being flat the previous month to rising 0.4% month on month, contributing approximately 0.21 percentage points to the month-on-month CPI increase. Travel agency fees, hotel accommodation, airfares, and vehicle rental prices each rose 7.2%; medical service prices rose 1.1% month on month due to the advancement of policy-driven price adjustments in some regions. Pang Ming, a member of the China Chief Economists Forum, said that the continued moderate rise in core CPI indicates that domestic demand is gradually recovering, with the consumption structure shifting from being driven by traditional food and energy toward services and experience-based consumption.

III. Food prices: Pork drag eases, but overall performance remains weaker than seasonal patterns

Food prices continued to weigh significantly on July CPI, although conditions improved marginally. Food prices fell 1.5% year on year, with the decline narrowing by 0.1 percentage points from the previous month.

Pork prices showed positive changes. Pork prices fell 13.3% year on year, with the decline narrowing by 2.6 percentage points from the previous month. Month on month, pork prices shifted from a 0.8% decline in the previous month to a 4.1% increase, contributing approximately 0.07 percentage points to the month-on-month CPI increase. The effects of comprehensive policy measures to regulate hog production capacity gradually emerged, while factors including higher transportation costs caused by extreme weather in some regions also contributed to the rebound in pork prices.

However, most other food components were weaker than seasonal patterns. Fresh vegetable prices rose 1.3% month on month, well below the seasonal level of 4.1%; fresh fruit prices fell 3.8% month on month, also below the seasonal level. Egg prices turned negative month on month in July after rising for three consecutive months. Donghai Securities pointed out that food prices were flat month on month in July, 0.52 percentage points below the average for the same period over the past five years, with most major components weaker than seasonal patterns.

IV. Structural bright spot: AI-driven consumer electronics price increases

Against the backdrop of generally cooling inflation, rising prices for consumer electronics driven by the artificial intelligence industry chain became a major structural bright spot in July CPI.

Prices of tablet computers, computers, and mobile phones rose 11.3%, 5.5%, and 1.0% month on month, respectively, collectively contributing approximately 0.03 percentage points to the month-on-month CPI increase. Year on year, prices of computers, tablet computers, and mobile phones rose 17.4%, 17.2%, and 8.5%, respectively, with all three increases widening and collectively contributing approximately 0.14 percentage points to the year-on-year CPI increase.

Artificial intelligence is driving the iteration and upgrading of consumer electronics, increasing demand for related products and pushing up prices. This phenomenon shows that new growth drivers are partially offsetting traditional downward inflationary pressure, while also reflecting the projection of China’s economic structural transformation onto prices.

V. Outlook for the year: Low inflation opens room for policy easing

Looking ahead, most institutions expect year-on-year CPI growth to edge up to around 0.7% in August. Supporting factors include the rise in international oil prices in July, which will drive an increase in domestic refined-oil prices in August; seasonal increases in food prices; and a further reduction in the drag from pork prices. Overall, however, CPI is likely to remain at low levels for the rest of the year, fluctuating within the range of 0.5%-1.0%.

The implications of the low-inflation environment for macroeconomic policy deserve attention. The current consumer market clearly exhibits strong supply and weak demand, while core CPI remains relatively low. Wang Qing, chief macro analyst at Golden Credit Rating International, said this means there is considerable room for policies to boost consumption in the second half of the year, especially as price factors will not become a major constraint on central bank interest-rate cuts. Research reports also believe that low prices provide ample room for countercyclical adjustment policies, including interest-rate cuts, to take effect.

Of course, some institutions remain relatively cautious. Nomura Securities believes that despite subdued inflation, the People’s Bank of China is unlikely to cut interest rates or reserve requirement ratios this year because other major central banks are facing pressure to raise rates. In any case, the July CPI data confirmed the continued cooling trend in inflation and gave policymakers greater room to maneuver.

Overall, beneath the superficial impression that the July CPI data was “in line with expectations” lies a complex picture shaped by the retreat of imported inflation, resilient core inflation, a marginal easing of the drag from food prices, and the rise of AI-related new growth drivers. Cooling inflation is not a signal of broad-based deflation, but rather resembles a normal return after an external shock has receded. Future price trends will depend more on the pace of domestic demand recovery and the continued release of new growth drivers such as AI.