China's headline consumer price index fell 0.3 percent on the year in July after no change in June. This is the first time headline CPI inflation has been in negative territory since January and February 2021 and extends the sharp downward trend in place since the start of this year. The index advanced 0.2 percent on the month after falling 0.2 percent previously. Food prices fell 1.0 percent on the month in July, offset by a 0.5 percent increase in non-food items. Despite the fall in headline CPI inflation, core CPI inflation rose from 0.4 percent to 0.8 percent.

Today's inflation data provide further evidence that China's economic recovery has lost momentum in recent months, with PMI surveys and offical activity data showing weaker conditions across the economy. Chinese leadership have been reported as noting"difficulties and challenges", including insufficient domestic demand, but the report also indicated that officials judged that there is presently no need for a major shift in policy settings. Today's data showing a year-over-year decline in headline CPI, however, may strengthen the case for some measures to support stronger demand.

Yet the CPI's contraction was less severe than the consensus forecast for headline CPI to have fallen 0.5 percent on the year. The China ECDI and the ECDI-P rose from minus 9 to plus 14 and plus 20 respectively, indicating that recent Chinese data in sum are coming in above consensus forecasts.

After June's zero rate for annual inflation, July is expected to fall into 0.5 percent contraction. China's CPI has fallen steadily from January's 2.1 percent.

Consumer Price Index (CPI) is an index that measures changes over time in the price level of consumer goods and services purchased by residents, which reflects the overall changes in price level.

Consumer prices account for a majority of overall inflation, which is carefully monitored by investors worldwide. Investors worldwide monitor Chinese price changes closely. A pickup in inflation could mean an increase in interest rates is in the offing from the People's Bank of China while an easing could mean looser monetary policy. The monthly CPI is broken down by 8 categories with more detail available on the following day including aggregate information by urban and rural areas and provinces.

The CPI measures the change in the level of prices for a specified basket of goods and services normally purchased by urban and rural residents. Approximately 226 areas throughout the country are covered, including 80 counties and 146 cities. The current CPI is an annually chained Laspeyres price index and has been available since 2001. From 1978 to 2000, the index was compiled using current year weights for most items.