UOB Kay Hian
Date of Report: Thursday, 10 July 2025
China Inflation in Focus: CPI Turns Positive, But PPI Slips Deeper into Deflation
Key Highlights from UOB Kay Hian’s Latest China Inflation Report
China’s inflation landscape is showing signs of a tentative turnaround, with the Consumer Price Index (CPI) turning positive in June 2025. However, persistent deflationary pressures remain evident in the Producer Price Index (PPI), reflecting ongoing challenges in the manufacturing sector. This detailed analysis provides investors and market watchers with a comprehensive breakdown of the latest inflation data, sectoral trends, and forward-looking insights for the world’s second-largest economy.
China’s CPI Edges Up: Signs of Recovery Amid Mixed Signals
The headline CPI for June 2025 recorded a modest increase of 0.1% year-on-year, exceeding consensus expectations and marking the end of a deflationary streak that began in February. Several key drivers contributed to this positive momentum:
- Rising global crude oil prices provided a lift to the transportation and communication sector, helping to offset the impact of ongoing electric vehicle (EV) price competition.
- Domestic consumption recovery remained mild but was bolstered by government subsidy programs, supporting overall demand.
- Food inflation remained soft at -0.3% year-on-year, although this was a slight improvement from the previous month. Pork prices in particular saw a significant drop of 8.5% year-on-year.
- The largest improvement was seen in Other Products and Services (up 8.1% year-on-year, +0.8 ppt), followed by Daily Necessities and Services (+0.7% year-on-year, +0.6 ppt), and Transportation and Communication (-3.7% year-on-year, +0.6 ppt).
- Core CPI inflation reached 0.7% year-on-year, the highest level so far this year, indicating resilient consumer demand.
Table: China CPI by Category (Year-on-Year % Change)
| Category |
Jun 25 |
ppt chg |
May 25 |
Apr 25 |
| Headline CPI |
0.1 |
0.2 |
-0.1 |
-0.1 |
| Food |
-0.3 |
0.1 |
-0.4 |
-0.2 |
| Core CPI |
0.7 |
0.1 |
0.6 |
0.5 |
| Goods |
-0.2 |
0.3 |
-0.5 |
-0.3 |
| Services |
0.5 |
0.0 |
0.5 |
0.3 |
| Food, Tobacco & Liquor |
0.1 |
0.0 |
0.1 |
0.3 |
| Clothing |
1.6 |
0.1 |
1.5 |
1.3 |
| Residence |
0.1 |
0.0 |
0.1 |
0.1 |
| Daily Necessities & Services |
0.7 |
0.6 |
0.1 |
0.2 |
| Transportation & Communication |
-3.7 |
0.6 |
-4.3 |
-3.9 |
| Recreational, Educational & Cultural Articles |
1.0 |
0.1 |
0.9 |
0.7 |
| Medical-Related Articles |
0.4 |
0.1 |
0.3 |
0.2 |
| Other Products & Services |
8.1 |
0.8 |
7.3 |
6.6 |
PPI Slips Further into Deflation: Manufacturing and Mining Under Pressure
While consumer inflation has seen a modest rebound, the producer side of the economy continues to struggle. The PPI deteriorated further to -3.6% year-on-year in June, falling below consensus expectations. Key highlights include:
- Producer goods PPI dropped to -4.4% year-on-year, with mining and quarrying plunging by 13.2% year-on-year, marking the steepest decrease among all categories.
- Raw materials PPI declined by 5.5% year-on-year, while processing fell by 3.2% year-on-year.
- Consumer goods PPI remained steady at -1.4% year-on-year, though durable consumer goods PPI showed a slight improvement (-2.7% year-on-year, +0.6 ppt).
- Food PPI inflation weakened to -2.0% year-on-year (-0.6 ppt).
- The Purchasing Price Index experienced a sharp drop of 4.3% year-on-year, highlighting widespread input cost deflation, especially in non-ferrous metal materials and wires, which saw a significant drop to 2.4% year-on-year (-2.2 ppt).
Table: China PPI by Category (Year-on-Year % Change)
| Category |
Jun 25 |
ppt chg |
May 25 |
Apr 25 |
| Headline PPI |
-3.6 |
-0.3 |
-3.3 |
-2.7 |
| Producer Goods |
-4.4 |
-0.4 |
-4.0 |
-3.1 |
| Mining and Quarrying |
-13.2 |
-1.3 |
-11.9 |
-9.4 |
| Raw Materials |
-5.5 |
-0.1 |
-5.4 |
-3.6 |
| Processing |
-3.2 |
-0.4 |
-2.8 |
-2.3 |
| Consumer Goods |
-1.4 |
0.0 |
-1.4 |
-1.6 |
| Food |
-2.0 |
-0.6 |
-1.4 |
-1.4 |
| Clothing |
0.1 |
0.1 |
0.0 |
-0.1 |
| Articles for Daily Use |
0.8 |
0.2 |
0.6 |
0.6 |
| Durable Consumer Goods |
-2.7 |
0.6 |
-3.3 |
-3.7 |
| Purchasing Price Index |
-4.3 |
-0.7 |
-3.6 |
-2.7 |
| Fuel and Power |
-10.4 |
-0.6 |
-9.8 |
-7.7 |
| Ferrous Metal Materials |
-8.0 |
-0.7 |
-7.3 |
-6.7 |
| Non-Ferrous Metal Materials and Wires |
2.4 |
-2.2 |
4.6 |
8.5 |
| Chemical Raw Materials |
-6.2 |
-0.8 |
-5.4 |
-4.1 |
| Wood and Pulp |
-4.2 |
-0.3 |
-3.9 |
-3.1 |
| Building Materials and Non-Metallic |
-2.6 |
-1.5 |
-1.1 |
-1.4 |
| Other Industrial Raw Materials and Semi-Products |
-2.0 |
-0.2 |
-1.8 |
-1.6 |
| Agricultural and Sideline Products |
-4.2 |
-1.6 |
-2.6 |
-2.9 |
| Textile Raw Materials |
-2.4 |
0.1 |
-2.5 |
-2.3 |
Sector-by-Sector Analysis: Winners and Losers
- Mining and Quarrying: The steepest drop across all segments, with a 13.2% year-on-year fall, reflecting weak global commodity prices and subdued demand.
- Raw Materials and Processing: Continued broad-based declines highlight ongoing challenges in industrial demand and overcapacity.
- Consumer Goods: Despite persistent negative inflation, there was a notable moderation in the decline of durable consumer goods, indicating a possible stabilization.
- Non-Ferrous Metal Materials and Wires: Registered a sharp deceleration, plummeting to 2.4% year-on-year from 4.6% previously, revealing rapid input cost deflation in this segment.
Outlook: Tariffs, Deflationary Pressures, and Policy Implications
Looking ahead, both CPI and PPI may see some upward pressure if China implements higher tariffs on imports from the US. However, analysts do not expect these measures to be sufficient to counterbalance the entrenched deflationary pressures stemming from a weak property market and fierce domestic competition. Manufacturers and retailers continue to vie aggressively for market share, exacerbating price competition and limiting the scope for inflation recovery.
Conclusion: A Fragile Path to Recovery
China’s inflation figures for June 2025 highlight a fragile yet encouraging turnaround in consumer price trends, while the producer sector remains mired in deflation. Investors should watch for further policy responses and tariff developments, as well as ongoing structural adjustments in the property and manufacturing sectors. The interplay between external shocks, domestic demand, and persistent overcapacity will continue to shape China’s inflation outlook in the months ahead.
Contact Information:
For further insights and analysis, contact:
Tham Mun Hon, CFA – +852 2236 6799 – [email protected]
Claire Wang – +852 2236 6761 – [email protected]
