China's June CPI weakened, while PPI may have peaked

Overview

This report analyzes China's June 2026 CPI and PPI data. Goldman Sachs notes that headline CPI inflation fell from +1.2% year-on-year in May to +1.0% in June, driven mainly by declines in energy and gold prices. PPI inflation rose from +3.9% to +4.1% year-on-year, but its seasonally adjusted annualized month-on-month momentum slowed significantly from May. The report's core judgment is that the second-quarter rise in PPI reflected an earlier manifestation of an oil-price-driven reflationary shock rather than a signal of sustained acceleration ahead.

Core views

The report's core views include: first, CPI inflation weakened marginally, with food prices remaining in negative territory and both non-food and core inflation slowing; second, the modest year-on-year increase in PPI was mainly driven by downstream industry prices, as declines in upstream oil and gas and chemical prices were offset by increases in ferrous metal and coal prices; third, stronger-than-expected second-quarter PPI indicates that the energy shock was more front-loaded; fourth, following Goldman Sachs' downward revision to its oil-price forecasts, its PPI month-on-month forecast for the second half of 2026 was revised lower, and PPI inflation is expected to decline year-on-year over the coming months; fifth, the full-year 2026 PPI forecast remains at 2.0%, while the full-year 2027 PPI forecast was lowered to 0%.

Analysis framework

The report uses a macroeconomic data decomposition approach, dividing CPI into food, non-food, and core components, and further examining pork, fresh vegetables, fresh fruit, fuel costs, transportation services, and prices of other goods and services. For PPI, it distinguishes between upstream and downstream sectors, producer goods and consumer goods, and assesses price momentum using both year-on-year and seasonally adjusted annualized month-on-month data.

Methodology notes

• Macroeconomic inflation analysisCombining year-on-year and seasonally adjusted annualized month-on-month changes

  Comparing year-on-year inflation with seasonally adjusted annualized month-on-month changes

  Year-on-year inflation measures changes in the price level relative to the same period last year, while seasonally adjusted annualized month-on-month changes capture recent price momentum. The report shows that June CPI rose at a seasonally adjusted annualized month-on-month rate of -0.4%, while PPI rose at +1.2%, both slower than in May.

• Inflation component decompositionCPI decomposition into food, non-food, and core components

  Decomposing CPI into food, non-food, and core CPI excluding food and energy

  This decomposition helps identify the sources of changes in inflation. The report notes that June food CPI inflation was -1.6% year-on-year, non-food CPI inflation was +1.5%, and core CPI inflation was +1.0%. Energy and gold prices were important factors behind the decline in headline CPI.

• Industrial-chain price transmissionDecomposing upstream and downstream contributions to PPI

  Comparing the contributions of upstream raw-material industries and downstream manufacturing industries to PPI

  The report believes that the upstream contribution to PPI was broadly unchanged in June, as declines in oil and gas and chemical prices were offset by increases in ferrous metal and coal prices. The entire 0.2 percentage-point increase in PPI inflation came from downstream industries, with approximately half attributable to electronic equipment manufacturing.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macro interest rates and inflation expectations

  A decline in CPI and a potential PPI peak could affect inflation expectations and policy expectations

  Strengths

  Slowing inflationary pressure could reduce the constraint that rising prices impose on policy.

  Weaknesses

  PPI inflation remains at +4.1% year-on-year, indicating that year-on-year pressure on industrial-goods prices has not yet subsided.

  Comparison

  Compared with May, CPI weakened while PPI inflation edged higher year-on-year, resulting in mixed macro price signals.

  Risks

  If oil prices or upstream raw-material prices rise again, the path of PPI deceleration could be interrupted.

• Energy and oil-and-gas-related assets

  The report attributes strong second-quarter PPI to a more front-loaded oil-price-driven reflationary shock

  Strengths

  The previous rise in energy prices supported PPI.

  Weaknesses

  The Commodities team's downward revision to subsequent oil-price forecasts weakens the momentum for further PPI increases.

  Comparison

  Declines in oil and gas prices were offset by increases in ferrous metal and coal prices, leaving the upstream contribution to PPI broadly stable.

  Risks

  If the downward revision to oil-price forecasts does not materialize, the PPI downside view is at risk.

• Gold and precious metals

  Lower gold prices were one reason for the slowdown in CPI, particularly non-food and core CPI

  Strengths

  Changes in gold prices have an observable impact on components such as other goods and services.

  Weaknesses

  Weaker gold prices reduced their contribution to related inflation.

  Comparison

  The report identifies energy and gold together as the main explanatory variables for the decline in June CPI from May.

  Risks

  A renewed rise in gold prices could lift the performance of related price components.

• Chemicals, ferrous metals, and coal

  These upstream industries jointly affect the composition of PPI contributions

  Strengths

  Rising ferrous metal and coal prices supported PPI.

  Weaknesses

  Declining chemical prices offset part of the upstream inflation contribution.

  Comparison

  The overall upstream contribution in June was broadly similar to May, with weakness in oil and gas and chemicals offset by strength in ferrous metals and coal.

  Risks

  Price divergence among upstream industries could increase PPI forecast errors.

• Downstream electronic equipment manufacturing

  The downstream sector contributed to the year-on-year increase in June PPI, with approximately half coming from electronic equipment manufacturing such as computers and communications equipment

  Strengths

  Higher downstream prices indicate support for prices in some manufacturing industries.

  Weaknesses

  PPI inflation for consumer goods remained at -0.9% year-on-year, indicating weak transmission of prices to consumers.

  Comparison

  Unlike the broadly unchanged upstream contribution, the entire 0.2 percentage-point increase in June PPI inflation came from downstream industries.

  Risks

  If end demand is insufficient, downstream price support may prove unsustainable.

Key data

• June headline CPI inflation+1.0%May: +1.2%; Goldman Sachs forecast and Bloomberg consensus: +1.1%.
• June headline CPI seasonally adjusted annualized month-on-month rate-0.4%May: +0.8%; seasonally adjusted by Goldman Sachs.
• June food CPI inflation-1.6%May: -1.7%; pork prices fell 15.9% year-on-year.
• June non-food CPI inflation+1.5%May: +1.9%; mainly affected by lower energy and gold prices.
• June core CPI inflation+1.0%May: +1.1%; excluding food and energy.
• June PPI inflation+4.1%May: +3.9%; Goldman Sachs forecast: +4.2%; Bloomberg consensus: +4.1%.
• June PPI seasonally adjusted annualized month-on-month rate+1.2%May: +8.8%; price momentum declined significantly.
• Full-year 2026 PPI forecast2.0%Goldman Sachs maintained the forecast unchanged.
• Full-year 2027 PPI forecast0%Lowered from the previous forecast of 0.6%.

Impact & implications

The report's implication for macro asset allocation is that China's short-term inflationary pressure remains influenced by the path of commodities, particularly oil prices, but the June data and lower oil-price forecasts together suggest that PPI inflation may decline over the coming months. For markets, this reduces the certainty of a sustained reflation trade and highlights the differentiated effects of energy, gold, chemicals, ferrous metals, coal, and downstream electronic equipment manufacturing prices on industrial-goods inflation.

Risks

• Oil prices could exceed the forecasts of Goldman Sachs' Commodities team, causing PPI inflation to decline more slowly than expected.
• Further increases in upstream prices such as ferrous metals and coal could offset the impact of lower oil and gas and chemical prices.
• If downstream price increases continue to spread, the assessment that PPI has peaked could face upward-revision risk.
• A rebound in energy and gold prices in CPI could push non-food and core CPI higher again.
• The report is based on currently available public information and Goldman Sachs' forecasts; subsequent data revisions or policy changes could alter the assessment.

What to watch

• Whether PPI inflation declines over the coming months as expected in the report.
• Whether the oil-price forecasts revised downward by Goldman Sachs materialize.
• Whether the offsetting effects among oil and gas, chemicals, ferrous metals, and coal prices on the upstream PPI contribution continue.
• Whether downstream electronic equipment manufacturing prices continue to drive PPI.
• Whether pork, fresh vegetable, and fresh fruit prices in food CPI recover from negative growth.
• Changes in gold prices, fuel costs, and transportation services within non-food and core CPI.