China: CPI softens, PPI reflation loses momentum

Research evidence excerpt

China: CPI softens, PPI reflation loses momentum

Feng Zhu Asia Pacific Economic Research J P M O R G A N(852) 2800 1745 09 July 2026

feng.zhu@jpmorgan.com

upgrading supported selected coal, equipment, AI, electronic-material and green-transition

prices. PPI details and weak CPI show price support concentrated upstream and in upgrading-

related pockets, while downstream transmission remains limited – pointing to low inflation

unless demand absorption improves or external shocks return.

June inflation data is consistent with our 2026 Mid-year Outlook view of softening growth

without reflation, with two nuances: sequential weakness reflects both fading external cost

pressures and weak domestic demand, while industrial upgrading is more visible but still too

narrow to offset soft absorption. The latest PMIs suggest that orders improved, but output prices,

employment and inventories remained weak. Next week’s June activity data will be important

in judging whether demand absorption is improving enough to support downstream prices.

The baseline remains low inflation with domestic demand being the binding constraint. Weak

household confidence, cautious hiring, housing softness, excess capacity and slow fiscal

transmission limit pricing power, while seasonal factors create volatility rather than sustained

reflation. External cost relief reinforces the dynamics: lower energy prices after the US-Iran truce

and partial reopening of Hormuz reduced fuel, freight and petrochemical pressures. China’s

lower oil imports, refinery cuts, weaker oil demand, and substitution towards coal, electrification

and alternative supply should continue to help stabilize global energy prices.

Risks are two-sided but asymmetric. On the upside risks, industrial upgrading, global IP/AI