China's Inflation Scissors Gap Narrows as July 2026 CPI and PPI Both Undershoot Expectations
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Key Views
Energy was CPI's biggest drag, with gasoline down 10.7% month-on-month, while services were the core support, up 0.4%. Food prices diverged, with pork turning positive MoM. Core CPI turned positive, underscoring service-consumption resilience. Imported pressure dominated PPI's wider MoM decline—upstream oil and nonferrous metals contributed over 90%—while AI-driven consumer electronics, high-end equipment, and peak-summer coal demand partially offset the drop.
Outlook
Expect a mild, stable price environment with no significant inflation or deflation. Full-year CPI should run at a moderate low, while PPI year-on-year growth enters a phase of correction, leaving ample room for macro policy. Watch four themes: hog prices, extreme weather, AI consumer electronics, and holiday services. Risks: commodity volatility, weather-driven food price rises, and weak domestic demand dragging core inflation.
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