China reported inflation data for July, indicating a slight improvement compared to June. The consumer price index fell by 0.3% from a year ago, but increased by 0.2% compared to June, according to the National Bureau of Statistics. This year-on-year CPI print for July was slightly better than analysts’ expectations for a 0.4% decline. However, it was still the first year-on-year decline since early 2021, according to official data.

The producer price index fell by 4.4% in July from a year ago, which was an improvement from the 5.4% decline in June. However, the year-on-year PPI read was worse than the 4.1% forecast by analysts. Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, noted that both CPI and PPI are in deflation territory, and attributed this to weakening economic momentum due to lackluster domestic demand.

A 26% year-on-year drop in pork prices, a staple food in China, contributed to the overall decline in the CPI for July. Additionally, tourism prices rose by 13.1% from a year ago. Core CPI, which excludes food and energy prices, rose by 0.8% from a year ago, the highest since January.

Bruce Pang, chief economist and head of research for Greater China at JLL, anticipates that producer prices will likely turn higher on a year-on-year basis before the consumer price index does. He expects consumer prices to continue being dragged down by falling pork prices and a high base effect, while core CPI may gradually rise.

Oxford Economics projects China’s consumer price index to grow by 0.5% this year, while the producer price index is expected to fall by 3.5%. The weak consumer demand in the second quarter is attributed to relatively contained demand-side stimulus during Covid, regulatory tightening, and an ongoing housing correction. Oxford Economics considers the targeted easing measures taken by authorities as a positive development, as opposed to large-scale stimulus.

China reported trade data for July that showed a sharp decline in both overseas and domestic demand. Exports fell by 14.5% from a year ago, while imports dropped by 12.4% in U.S. dollar terms, both worse than analysts’ expectations. The decline in imports was partly due to commodity price declines. China is set to release retail sales, industrial production, and other data for July on August 15.

Correction: This article has been updated to accurately reflect that Oxford Economics expects China’s producer price index to fall 3.5% this year. An earlier version of the story misstated it.