FX.co ★ Inflation in China slows for first time since military conflict in Middle East

In July 2026, China recorded the first slowdown in both factory and consumer inflation since the outbreak of the US-Iran war and the resulting oil shock. According to data from the National Bureau of Statistics of China, the producer price index (PPI) rose 3.5% in July year-on-year, down from 4.1% a month earlier. Consumer inflation (CPI) also fell to 0.5% from 1.0% in June, while the core CPI (excluding volatile food and energy prices) declined from 1.0% to 0.9%.

The main factor reducing inflationary pressure remains weak domestic demand, which prevents firms from passing higher costs for commodities, metals, and semiconductors on to end consumers. This has skewed sectoral profitability: consumer-goods manufacturers (including the apparel sector) are reporting falling revenues, while energy companies are reporting gains. Domestic tourism over the summer holidays underperformed expectations, leading to lower airfares and hotel prices, while pig farming has shown signs of easing oversupply.

The slowdown in inflation coincided with a drop in average commodity costs from their peaks earlier in the year and the first signs of a possible reopening of sea routes. US President Donald Trump noted progress in talks between Tehran and Oman over the Strait of Hormuz, although Iran insists on its conditions. At the same time, the return of prices to low growth once again raises analysts’ concerns about long-term deflationary risks that could constrain investment, hiring, and consumer spending in China.