China Inflation Cools in July Amid Weak Domestic Demand

China's factory-gate and consumer inflation cooled more than expected in July, reflecting sluggish domestic demand and a retreat in global oil prices. The National Bureau of Statistics reported that the producer price index rose 3.5% year-on-year, down from 4.1% in June and missing economist forecasts of 3.8% to 3.9%. Consumer inflation dropped to 0.5% from 1% in June, also falling below the expected 0.8% rise.

The slowdown signals a decline in cost pressures caused by the oil shock following the outbreak of war in Iran in late February. While factory-gate prices have grown for five consecutive months, monthly prices declined 0.7% due to retreating oil costs and extreme weather. The National Bureau of Statistics attributed the headline slowdown primarily to decelerating gasoline price growth.

Weak domestic spending has prevented factories from passing higher global costs for chips, metals, and oil to consumers, creating a profit divergence between energy producers and downstream industries like clothing. This economic cooling in the second quarter occurred as AI-driven exports failed to offset weak internal demand, prompting the Politburo to signal increased fiscal spending.

Separately, diplomatic efforts to stabilize the region continue. President Donald Trump stated that negotiations between Iran and Oman regarding the Strait of Hormuz are progressing, and Tehran indicated it is close to a deal on a new maritime transit route, provided the U.S. meets specific demands.