- According to data released by China's National Bureau of Statistics, the national Consumer Price Index (CPI) in June rose by 1.0% year-on-year, a decrease from the previous month's 1.2% and below the market's general expectation of 1.1%. The decline in commodity costs and the partial easing of geopolitical tensions were the core driving factors for the slowdown in price growth.
- The Producer Price Index (PPI) for industrial producers rose by 4.1% year-on-year, meeting market expectations, but fell by 0.3% month-on-month. This is the first month-on-month decline since July 2025. This change reflects a certain phase of downward pressure on upstream industrial product prices.
- The core CPI, excluding food and energy prices, rose by 1.0% year-on-year, marking the smallest increase since January this year. The slowdown in core inflation momentum indicates that domestic demand recovery remains in a stable but weak phase, and market expectations for the central bank to further release liquidity or adjust policy rates in the second half of the year have increased.
Significant Divergence in Consumer Price Structure
Structurally, the urban CPI in June rose by 1.0% year-on-year, while the rural CPI increased by 0.8%. Among them, food prices fell by 1.6% year-on-year, while non-food prices rose by 1.5%. The divergence between food and non-food trends reflects the structural characteristics of current consumer demand. The decline in food prices eases the cost of living for residents, but the moderate rise in non-food items indicates that services and other consumer goods still have some support, with overall consumer preferences showing a more defensive characteristic focused on cost-effectiveness.
Core Inflation Reflects Domestic Demand Momentum
In June, the core CPI rose by only 1.0% year-on-year, recording the smallest increase since January this year. The weakening of the core index is mainly affected by seasonal factors and base effects, but it also reflects to some extent that the overall expansion momentum of terminal consumption still needs to be strengthened. Against the backdrop of a low core inflation center, the pressure of asset valuation re-evaluation may be transmitted to pro-cyclical sectors, with market funds gradually flowing into defensive assets with high certainty dividend characteristics.
Production End Prices Face a Cyclical Turning Point
Although the PPI maintained a 4.1% year-on-year growth in June, meeting market expectations, it recorded a 0.3% month-on-month decline, interrupting the continuous month-on-month growth trend since July 2025. The decline in international commodity prices directly reduced the procurement costs of raw materials for enterprises, but this also means that the profit margins of industrial enterprises face redistribution. If the month-on-month decline continues, the risk appetite of the industrial sector may further tighten, suppressing the short-term valuation of upstream manufacturing enterprises.
Policy Expectations Guide Capital Flows
The overall weakening of inflation data has provided more room for maneuver in monetary policy. As current inflationary pressures have significantly eased, major institutions generally expect that future policy levels may boost total demand in the real economy through precise liquidity support or structural tools. This expectation of marginal policy changes is guiding the downward shift of the central yield in the government bond market, attracting risk-averse funds to continuously flow into fixed-income assets, while also prompting the allocation style of the equity market to switch to policy-benefiting sectors.
