Oil and gold lifted China’s August inflation, but underlying domestic price pressure remained weak

Overview

This macro and rates note explains why China’s August inflation data strengthened and assesses the near-term implications for policy and the rates curve. Nomura argues that oil and gold, rather than a broad improvement in domestic demand-led inflation, drove the headline rebound.

Core views

China’s August CPI inflation rose by 0.3 percentage points to 0.8% year-on-year, from 0.5% in July, matching both consensus and Nomura forecasts. PPI inflation also accelerated, to 3.8% year-on-year from 3.5%, above the 3.6% consensus forecast but in line with Nomura’s estimate. Nomura attributes most of the CPI rebound to oil and gold: their contributions increased by 0.24 percentage points and 0.05 percentage points, respectively, from July. The report therefore distinguishes stronger headline inflation from still-weak underlying domestic price pressure; excluding external support from oil, non-ferrous metals and chips, August PPI inflation would have been 0.40% year-on-year, little changed from July. Oil was the principal CPI driver. Domestic gasoline prices rose 7.2% month-on-month in August after declines in the prior three months, adding 0.21 percentage points to CPI month-on-month. Gasoline inflation reached 9.3% year-on-year, compared with 1.0% in July, and its headline CPI contribution rose to 0.28 percentage points from 0.06 percentage points. Excluding oil, Nomura estimates CPI would have been 0.52% year-on-year in August, versus 0.44% in July. Brent spot prices rebounded above USD100/bbl in early September amid the Middle East stalemate; the NDRC raised retail petrol prices by RMB375 per tonne on 29 August, and month-to-date September petrol prices were up another 2.6%. Nomura says sustained oil prices would likely prompt another petrol-price increase in mid-September. Gold also boosted inflation. Gold-related product prices rose 33.6% year-on-year in August, up from 24.6% in July. Given an approximately 0.6% weight in the core CPI basket, Nomura estimates gold contributed 0.2 percentage points to core inflation; excluding gold, core CPI would have been 0.80% year-on-year, close to July’s 0.75%. However, the report expects unfavorable base effects for year-on-year gold inflation in September and October because gold prices had risen 9.0% month-on-month in September 2025 and 10.6% in October 2025. Food-related deflation eased but remained a drag. Pork prices rose 1.3% month-on-month in August after a 4.1% increase in July, while pork inflation improved to -11.8% year-on-year from -13.3%; its drag on headline CPI was 0.22 percentage points. Nomura links the recovery to reduced hog slaughter and supply-side stabilization efforts. Breeding sow stocks stood at 37.8 million head at end-June, 6.5% below a year earlier, and the report cites a historical 10-12 month lag from sow-stock changes to pork prices. In September to date, wholesale pork prices had risen another 2.4% month-on-month, while pork inflation improved to -16.9% year-on-year from -20.9% in August. The report also identifies a rising but contained AI-related goods-price effect. Rising chip prices led prices of mobile phones, tablets and data-storage equipment to increase by 2.3%, 2.1% and 2.1% month-on-month, respectively, although their combined CPI boost was only 0.03 percentage points month-on-month. Year-on-year prices for tablets, computers and mobile phones rose 21.5%, 19.6% and 11.0% in August, respectively, all above July readings. Nomura characterizes these price pressures as visible but still limited in their aggregate inflation impact. PPI’s August rebound reflected both upstream and downstream sectors, an unusual combination given previously subdued downstream pricing. Upstream PPI increased to 5.0% year-on-year from 4.8%, with mining at 17.8% and raw materials at 6.7%. Manufacturing held at 3.1%, while downstream consumer-goods PPI improved to -0.5% from -0.8%, its highest level since mid-2023. Global crude-price strength drove petroleum and natural-gas extraction PPI to 10.5% from 3.2%, and petroleum, coal and other fuel processing to 11.1% from 8.2%. Non-ferrous metal smelting and pressing inflation rose to 20.8%, while ferrous metal smelting and pressing fell to -0.3% from 2.7%. For September, Nomura expects CPI inflation to stay at 0.8% year-on-year, as elevated oil prices are offset by high food-price bases. It forecasts PPI inflation to edge up to 3.9% year-on-year, supported by higher industrial raw-material prices; the Nanhua industrial raw-material index had risen 5.5% month-on-month in September to date after a 2.9% August increase. Despite weak underlying inflation, Nomura does not expect a broad PBoC policy-rate cut this year, citing strong headline conditions and pressure on major central banks to raise rates. It nevertheless expects targeted rate cuts to complement fiscal support, potentially including lower PSL rates as policy banks deploy RMB800 billion in new policy financing tools to support investment. In rates strategy, Nomura says the inflation outcome supports stability in China rates at low levels. It retains a swap-curve steepening view because loose liquidity is expected to support macro stabilization while investment remains weak. The report sees potential upside in the 5-year swap, with seasonal support from higher China rates in each of the past five Septembers. On the bond curve, it expects 10s30s to flatten, viewing 30-year bonds as the tenor that can still perform in a low-volatility environment while the 10s30s spread remains close to 50 basis points. It maintains a pay September 5-year NDIRS versus long 30-year CGB position, referencing the 2.23% June-2056 expiry, and separately recommends a small additional 5-year swap pay position at an indicative 1.485%, with DV01 of USD1.5k each.

Analysis framework

Nomura decomposes CPI and PPI changes by major components and sector contributions, separating commodity-driven external effects from domestic inflation. It then combines near-term oil, gold, food and industrial-raw-material price signals with policy-financing conditions to form September inflation forecasts and a China rates-curve trade view.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Inflation contribution decomposition by oil, gold, food, AI-related goods, and upstream and downstream industrial sectors.

  The report uses component-level price changes and contribution estimates to show that the headline CPI and PPI rebound was mainly commodity-driven rather than a broad domestic inflation recovery.

• Fixed Income and CreditYield curve analysis

  Relative-value assessment of the 5-year swap and 30-year government bond, including the 10s30s spread.

  Nomura links low-rate conditions, liquidity and seasonality to a steeper swap curve and a flatter 10s30s bond curve, supporting its paired rates position.

Asset mapping & comparison

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

• Sep-5y NDIRS

  Nomura maintains a pay position, expecting potential upside in the 5-year swap supported by September seasonality and loose liquidity.

  Strengths

  China rates were higher in each of the past five Septembers, according to the report.

  Comparison

  Paired against a long 30-year CGB position.

• 30-year CGB (2.23% Jun-2056)

  Nomura is long the bond against paying the 5-year NDIRS and expects the 10s30s curve to flatten.

  Strengths

  Nomura views the 30-year tenor as able to perform in a low-volatility environment.

  Comparison

  The 10s30s spread remained close to 50bp.

Key data

• August CPI inflation0.8% y-o-yUp from 0.5% in July; in line with consensus and Nomura forecasts.
• August PPI inflation3.8% y-o-yUp from 3.5% in July; above 3.6% consensus and in line with Nomura's forecast.
• Oil contribution to CPI rebound0.24pp y-o-yIncrease in contribution from July to August.
• Gold contribution to CPI rebound0.05pp y-o-yIncrease in contribution from July to August.
• August core CPI inflation1.0% y-o-yUp from 0.9% in July; excluding gold, Nomura estimates 0.80%.
• August pork inflation-11.8% y-o-yImproved from -13.3% in July but remained deflationary.
• September CPI forecast0.8% y-o-yExpected to be unchanged from August.
• September PPI forecast3.9% y-o-yNomura expects a slight increase, supported by industrial raw-material prices.
• New policy financing toolsRMB800bnPolicy banks began deploying the tools in early September to arrest the investment decline.

Impact & implications

Nomura’s central implication is that stronger headline inflation does not signal a broad-based domestic price recovery, because oil, gold and other external inputs account for much of the acceleration. The mix supports its expectation of low and broadly stable China rates, with targeted monetary easing potentially accompanying fiscal and policy-bank support rather than a broad policy-rate reduction.

What to watch

• Whether elevated Brent prices persist and trigger another NDRC petrol-price increase in mid-September.
• September CPI and PPI outcomes relative to Nomura’s 0.8% and 3.9% year-on-year forecasts.
• Pork-price recovery and the effect of supply-side stabilization measures.
• Whether PBoC lowers targeted instrument rates, particularly PSL, as policy banks deploy new financing tools.
• The evolution of the 5-year swap and the 10s30s curve in China rates.