China’s Consumer Price Index (CPI) for August 2025 is expected to display ongoing deflation, predicted to be at -0.2% year-on-year compared to 0% in July. Despite continuous economic support and stimulus, domestic demand in China remains weak.
The Producer Price Index (PPI) is also forecasted to continue its deflationary trend. In an initiative termed “Anti-involution,” Chinese policy has shifted to combat intense and unproductive competition, particularly in sectors such as solar, electric vehicles, and steel.
Preventing Inefficiency
This policy shift aims to prevent inefficiency arising from excessive competition with minimal advances. Overcapacity persists in competitive private-sector industries, presenting ongoing challenges.
The data release is scheduled for 0130 GMT, making it available at 2130 US Eastern time.
We are closely watching the Chinese inflation data scheduled for release tomorrow, September 10th. The market expects another month of deflation, which signals that weak domestic demand is becoming entrenched despite government efforts. This reinforces a cautious outlook on assets tied to Chinese and global growth.
This situation presents clear signals for currency markets, particularly for commodity-linked currencies. Historically, we have seen the Australian dollar weaken against the US dollar following poor Chinese industrial data, as was common during the slowdowns of 2023 and 2024. Therefore, holding bearish positions on the AUD/USD pair or buying put options on Australian dollar futures could be a prudent hedge against a worse-than-expected data print.
Market Implications
The ongoing producer price deflation points directly to industrial overcapacity and falling demand for raw materials. Iron ore prices, which have struggled to hold above $110 per tonne for most of 2025, are especially vulnerable to further declines. We anticipate that traders will increase short positions in commodity futures for industrial metals like copper and iron ore in the coming weeks.
Global equities with significant sales exposure to China will likely face downward pressure. Companies in sectors like European luxury goods, German automotive, and US technology have seen their valuations become increasingly tied to Chinese consumer sentiment. Given that a company like Apple saw nearly 20% of its revenue come from Greater China in 2024, any confirmation of prolonged consumer weakness justifies buying protective puts on these specific stocks.
The broader theme is a potential spike in volatility, especially if the data surprises to the downside. The “Anti-involution” policy mentioned is a long-term goal, but for now, the price wars it aims to stop are a key driver of this deflationary pressure. We could see traders positioning for increased market turbulence by buying options on ETFs that track the Hang Seng Index or other China-focused funds.
