July CPI and PPI Both Below Expectations, with Energy and Upstream Commodity Prices the Main Drags

Overview

The report comments on China's July 2026 inflation data. CPI and PPI year-on-year growth both declined from June and were below Goldman Sachs forecasts and Bloomberg market consensus expectations. The decline in CPI was mainly driven by lower prices of energy-related goods and tourism-related services; the decline in PPI came entirely from weaker upstream product prices, with the most notable decreases in contributions from the oil and gas, non-ferrous metals, and chemical industries.

Core views

Price momentum broadly slowed in July. CPI year-on-year growth fell from 1.0% in June to 0.5%, and seasonally adjusted month-on-month annualized growth fell further from -1.1% to -4.3%; PPI year-on-year growth fell from 4.1% to 3.5%, and seasonally adjusted month-on-month annualized growth turned from +1.7% to -7.6%. The year-on-year decline in food prices narrowed slightly, but non-food prices, core consumer prices, and upstream industrial product prices all weakened. The data indicate that short-term inflation pressure has declined, and changes in energy and commodity prices remain key factors affecting headline inflation.

Analysis framework

Based on NBS and CEIC data, the report breaks down headline CPI into food, non-food, and core CPI, and explains changes through sub-items such as fuel, transportation services, gold, and home appliances; for PPI, it distinguishes upstream industries, means of production, and means of subsistence, and calculates each industry's contribution to year-on-year changes. It also compares July actual figures with Goldman Sachs forecasts, Bloomberg consensus expectations, and June data, and uses Goldman Sachs' seasonally adjusted month-on-month annualized indicators to assess short-term price momentum.

Methodology notes

• Inflation decompositionCPI sub-item contribution analysis

  Break down changes in overall consumer prices into food, non-food, and core prices.

  This method is used to identify whether the decline in headline CPI is driven by food, energy, services, or other core consumer items.

• Industry chain analysisPPI upstream, midstream, and downstream contribution analysis

  Analyze changes in industrial product prices by upstream industries, means of production, and means of subsistence.

  The report uses changes in industry contributions to determine that the July PPI decline mainly came from upstream products such as oil and gas, non-ferrous metals, and chemicals.

• Trend analysisComparison of year-on-year and seasonally adjusted month-on-month annualized growth

  Assess price momentum by combining year-on-year trends with seasonally adjusted month-on-month annualized growth.

  Year-on-year indicators reflect longer-term changes, while seasonally adjusted month-on-month annualized indicators are used to observe recent price direction, but may amplify single-month fluctuations.

• Expectations analysisComparison of actual values and forecasts

  Compare actual data with Goldman Sachs forecasts and market consensus expectations.

  Both CPI and PPI were below Goldman Sachs and market forecasts, constituting a clear downside surprise.

Asset mapping & comparison

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

• Oil and gas

  Declining prices of oil-related products are one of the core drivers of the decline in CPI and PPI.

  Strengths

  Lower energy prices may reduce transportation, manufacturing, and household consumption costs.

  Weaknesses

  Weaker prices mean pressure on pricing power and nominal revenue momentum at the oil and gas production end.

  Comparison

  Fuel cost year-on-year growth fell from 15.3% in June to 0.8% in July.

  Risks

  A rebound in international oil prices could quickly reverse the current drag on inflation.

• Non-ferrous metals

  Declining non-ferrous metal prices drove a reduction in upstream industries' contribution to PPI year-on-year growth.

  Strengths

  Price declines may ease raw material costs for manufacturing.

  Weaknesses

  Product prices and profit margins of upstream producers may come under pressure.

  Comparison

  Compared with June, the total contribution of upstream industries to PPI year-on-year growth declined by 0.7 percentage points in July.

  Risks

  Supply disruptions, changes in global demand, and inventory cycles may cause prices to rise again.

• Chemicals

  The decline in chemical product prices was an important reason for the year-on-year decline in PPI.

  Strengths

  Downstream manufacturing and consumer goods companies may benefit from lower chemical raw material costs.

  Weaknesses

  Chemical producers face pressure from weaker product selling prices and profit elasticity.

  Comparison

  Chemical prices in July were weaker than in June and, together with oil and gas and non-ferrous metals, dragged down upstream PPI contributions.

  Risks

  Energy costs, capacity changes, and end demand may alter price trends.

• Gold

  Soft gold prices were one factor behind the slight decline in core CPI year-on-year growth in July.

  Strengths

  The report does not provide a clear positive assessment for gold assets.

  Weaknesses

  Weaker gold prices in the consumer price measure dragged on core CPI.

  Comparison

  Core CPI year-on-year growth fell from 1.0% in June to 0.9% in July.

  Risks

  This conclusion only reflects China's consumer price sub-item and is not equivalent to an outlook for global gold investment prices.

Key data

• July CPI year-on-year+0.5%Goldman Sachs forecast was +0.9%, Bloomberg consensus expectation was +0.8%, and June was +1.0%.
• July CPI seasonally adjusted month-on-month annualized-4.3%June was -1.1%; seasonal adjustment was performed by Goldman Sachs.
• July food CPI year-on-year-1.5%June was -1.6%; the year-on-year decline narrowed slightly.
• July non-food CPI year-on-year+0.9%June was +1.5%; prices of oil-related products and tourism-related services were the main drags.
• July core CPI year-on-year+0.9%June was +1.0%; gold and home appliance prices were weak.
• July PPI year-on-year+3.5%Goldman Sachs forecast was +4.0%, Bloomberg consensus expectation was +3.9%, and June was +4.1%.
• July PPI seasonally adjusted month-on-month annualized-7.6%June was +1.7%; short-term industrial product price momentum weakened notably.
• Change in upstream industries' contribution to PPI year-on-year-0.7 percentage pointsThis is the change from June to July, mainly caused by declines in oil and gas, non-ferrous metals, and chemical prices.
• July PPI for means of production year-on-year+4.8%June was +5.5%.
• July PPI for means of subsistence year-on-year-0.8%June was -0.9%; the year-on-year decline narrowed slightly.

Impact & implications

Inflation below expectations means short-term price pressure has eased. Declines in energy and upstream commodity prices may reduce input costs for some midstream and downstream companies, but they also reflect weaker pricing momentum in the oil and gas, non-ferrous metals, and chemical industries, which may weigh on revenue and profit elasticity for related upstream companies. Core CPI remains positive but has cooled slightly, indicating weak consumer-end price momentum. The report does not provide a clear monetary policy forecast or asset trading recommendation, so policy and market implications still need to be assessed in conjunction with subsequent growth, demand, and commodity price data.

Risks

• Single-month inflation data may be affected by seasonality, base effects, and temporary price fluctuations.
• Seasonally adjusted month-on-month annualized indicators amplify single-month changes and should not be interpreted in isolation from year-on-year trends.
• If oil prices, metals, and chemical product prices rebound, the current trend of slowing inflation may reverse.
• Public data, forecasts, and estimates may be revised, and the report's conclusions may also change with new data.
• The report does not provide individual stock earnings forecasts, valuations, or clear trading recommendations, and the asset mapping can only reflect the direction of price transmission.

What to watch

• Whether subsequent CPI and PPI continue to come in below market expectations.
• International oil prices and year-on-year changes in China's fuel prices.
• Whether prices of services such as tourism and transportation can stabilize.
• Whether core CPI remains below 1%.
• The subsequent contributions of oil and gas, non-ferrous metals, and chemical prices to PPI.
• Whether declines in means of production prices can translate into cost improvements for midstream and downstream sectors.
• The impact of gold and home appliance prices on core consumer inflation.
• Food price trends, especially pork, vegetable, and fruit prices.