2025-09-10
China's headline CPI slipped 0.4% year on year in August with 0.0% month‑on‑month, while PPI deflation eased to −2.9% y/y, a mix that points to weak household demand and a mild depreciation bias for the yuan, even as policy tools help prevent disorderly moves.
Headline CPI fell 0.4% y/y in August, missing a −0.2% consensus and reversing July's 0.0% y/y reading, with the monthly rate flat after a 0.4% gain in July, indicating fading momentum in consumer prices into late summer. [1]
Early coverage focused on continued discounting and subdued household demand, with consumer‑facing sectors cutting prices to stimulate sales as broader recovery signals remain uneven.
Food components stayed under pressure, with external datasets flagging a steeper annual drop in food prices in August, reinforcing the drag on headline CPI even as some non‑food categories hold steadier.
Producer prices shrank 2.9% y/y in August, an improvement from July's −3.6%, suggesting factory‑gate deflation is easing at the margin, though demand remains soft.
Upstream cost relief looks consistent with base effects and modest stabilisation in some inputs rather than a robust demand‑led recovery in output prices.
Consumer‑goods pricing remains constrained by weak pass‑through, while producer‑goods prices benefit more from the tempering in raw‑material deflation.
External demand headwinds limit margin repair, keeping output‑price gains tentative despite a slower PPI contraction.
The overall PPI trajectory still argues for caution on industrial pricing power into autumn despite a less negative annual pace.
A weaker CPI print typically leans bearish for the yuan by signalling softer domestic demand and anchoring lower real‑rate expectations, but authorities' use of a stronger‑than‑model daily fix and state‑bank dollar sales has kept depreciation orderly this year.
The immediate read‑through tends to show a mild CNH bias weaker after CPI misses, with spill‑over to high‑beta Asia FX, while onshore–offshore spreads and the fix signal how much pressure policymakers are willing to absorb near term.
Directionally, the rates backdrop—headline CPI negative, PPI less negative—supports accommodative conditions without pointing to aggressive easing, which keeps FX policy as the primary stabiliser if sentiment wobbles.
| Indicator | Latest/Direction | Note |
|---|---|---|
| USD/CNH spot | Mild CNH bias is weaker post-CPI (directional) | Near-term pressure balanced by policy tools |
| Daily fix vs model | Stronger-than-expected bias (directional) | Signals intent to curb one-way moves |
| Onshore–offshore spread | Managed and contained (directional) | Stability suggests smoothing rather than trend change |
| Policy rates/liquidity | Incremental support, not aggressive | Fits a targeted, data-aware approach |
Export growth slowed to the weakest in six months in August as tariff risks and softer global orders weighed, compounding domestic disinflation pressures when private demand underperforms.
Services activity, however, hit a 15‑month high in August on private survey measures, showing pockets of resilience even as goods pricing stays under pressure, which helps explain the divergence between services momentum and headline prices.
The net effect is a two‑speed economy: services stabilising from a low base while goods disinflation persists, especially where discounting is prevalent and inventories remain ample. [2]
Coverage highlights authorities' efforts to rein in excessive price cuts in key sectors while prioritising targeted support measures over broad‑brushed credit easing that could stoke imbalances, implying incremental rather than sweeping stimulus ahead.
The central bank is expected to keep leaning on a firm daily fix and liquidity tools to manage FX stability, enabling gradual adjustment to data without inviting speculative one‑way flows.
Fiscal options remain focused on consumption incentives, sector‑specific guidance, and measures that improve pass‑through to household demand rather than headline‑grabbing packages, reflecting a preference for calibrated, multi‑channel support. [3]
| Indicator | Latest | Prior | Direction | Note |
|---|---|---|---|---|
| CPI (y/y) | −0.4% | 0.0% (Jul) | Weaker | Missed −0.2% consensus; demand soft |
| CPI (m/m) | 0.0% | 0.4% (Jul) | Weaker | Momentum faded after the July rebound |
| PPI (y/y) | −2.9% | −3.6% (Jul) | Less negative | Factory-gate deflation easing |
| Food prices (y/y) | −4.3% | −1.6% (Jul) | Weaker | Food drag deepened on the headline CPI |
| Services activity | 15-month high (Aug) | Lower earlier | Firmer | Services resilience vs goods softness |
Daily fix versus model estimates: a wider positive bias signals stronger intent to cushion the currency after the CPI miss.
Onshore–offshore spread: a contained spread indicates effective smoothing; a persistent widening would imply greater market pressure.
State‑bank dollar‑selling cadence: stepped‑up activity typically accompanies data‑driven CNH weakness to prevent overshoot.
CNH‑proxy FX: AUD reaction offers a quick read on China‑sensitive risk, with the pair often softening on China growth disappointments.
China's August CPI at −0.4% y/y with flat m/m confirms renewed disinflation pressure, while PPI at −2.9% y/y shows factory‑gate deflation easing from July's trough, a combination that underscores fragile household demand and cautious industrial pricing power into autumn.
For FX, the bias tilts toward a softer yuan at the margin, moderated by a firm daily fix and state‑bank smoothing, which together point to managed adjustment rather than abrupt depreciation after the CPI miss. With exports soft and services firmer but uneven, policy is likely to stay targeted and incremental, using fiscal micro‑measures and calibrated liquidity—an approach that aims to bolster demand without reigniting imbalances or inviting volatile capital flows.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person.
[1] https://www.cnbc.com/2025/09/10/china-cpi-august-deflation-.html
[2] https://www.reuters.com/markets/europe/chinas-services-activity-growth-hits-15-month-high-august-private-pmi-shows-2025-09-03/
[3] https://www.reuters.com/world/china/chinas-producer-deflation-eases-helped-by-crackdown-price-wars-2025-09-10/
