China's economy has officially moved past a 12-quarter phase of negative GDP deflator growth.
According to the latest data from the National Bureau of Statistics, the second-quarter GDP grew by 4.3% year-on-year. Key economic indicators are operating within an appropriate range, indicating a trend of high-quality development.
The GDP growth rate published by the National Bureau of Statistics is the real growth rate calculated at constant prices. Institutional calculations show that the nominal year-on-year GDP growth for the second quarter, calculated at current prices, was 5.9%, with a GDP deflator of 1.6%. This marks the official end of the 12-quarter period of negative deflator growth.
China Galaxy Securities pointed out that the nominal GDP growth rate for Q2 rebounded against the trend, exceeding market expectations. As the "nominal recovery" transmits to end consumption and capital formation, the phase of micro-level "quasi-deflationary" sentiment is largely over. The smooth improvement in the price chain will lead to a stabilization and recovery in residents' disposable income, corporate profits, and fiscal revenue. The period of negative micro-level sentiment since 2023 is now seeing a substantive turning point, with the economy expected to maintain stable operation in the second half of 2026.
The Chief Macro Analyst at Dongfang Jincheng stated that the positive turn in the Q2 GDP deflator signifies a reversal of the previously sustained low price levels, which is conducive to breaking the negative cycle of "insufficient economic growth momentum—low price levels."
Sustained Price Recovery
The GDP deflator reflects the direction of price levels and is a macro-level measure. Unlike commonly used price indices such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), which are compiled through sample surveys, the GDP deflator is not directly compiled but is calculated.
The National Bureau of Statistics explained that the GDP deflator reflects the overall price changes of final goods and services produced, primarily used to analyze changes in the general price level, making it the most macro and comprehensive price index.
The Chief Economist at China Minsheng Bank noted that a prominent feature of the current Chinese economic operation is the new trend of a mild price recovery, which has preliminarily achieved the goal set in this year's government work report of shifting the general price level from negative to positive. This will further improve corporate profitability, thereby boosting market expectations and investment confidence.
Since the second quarter, driven by both imported factors and base effects, the year-on-year PPI has continued to rise, while the CPI has remained above 1%, jointly contributing to the price recovery.
In the first half of the year, the CPI rose by 1.0% year-on-year, with a 0.9% increase in Q1 and a 1.1% increase in Q2. The Q2 growth rate expanded by 0.2 percentage points compared to Q1, marking the third consecutive quarter of expansion in consumer price growth since Q4 of last year. This reflects changes in domestic consumption demand, the effectiveness of earlier comprehensive measures to curb "inward-rolling" competition, and the impact of recent fluctuations in international commodity prices.
Looking at the core CPI, which excludes food and energy prices, aside from significant fluctuations in January and February due to the Lunar New Year timing, other months have seen the core CPI maintained at 1% or above, indicating the driving effect of released consumer demand on prices.
The spokesperson for the National Bureau of Statistics stated that the reasonable recovery in consumer prices helps improve corporate profit expectations, stabilize market confidence, and promote employment and income growth for residents, thereby facilitating the smooth circulation of the national economy. Looking ahead to the second half of the year, as policies to promote consumption continue to be implemented, demand for service consumption, upgraded consumption, and new forms of consumption is expected to be steadily released, and consumer prices are likely to continue their mild upward trend.
Regarding the PPI, influenced by the transmission of rising international commodity prices and improved demand in some domestic sectors, it has shown a gradual recovery trend. In the first half of the year, the PPI rose by 1.5% year-on-year, with a 0.6% decline in Q1 and a 3.6% increase in Q2, marking the first positive quarterly growth since Q4 2022.
On a monthly basis, the PPI has risen for four consecutive months since March. In June, improved demand in some sectors continued to drive prices in the production sector. In particular, the acceleration of electrification, the expansion of AI application scenarios, and increased computing power demand have driven sustained price increases in industries such as non-ferrous metals, electronics, and electrical machinery.
The spokesperson added that in the next stage, the PPI still has solid support for stable operation. The accelerated integration of AI across various fields, significant growth in computing power demand, and gradual optimization of market competition order may drive price increases in related industries. Although there are many external uncertainties and unpredictable factors, and the trend of international commodity prices remains uncertain, China's comprehensive industrial categories, strong industrial production capacity, diversified energy import channels, ample reserves, continuously enhanced resilience of industrial and supply chains, and the ability to withstand external risks and manage complex situations mean that external imported influences are generally controllable.
Promoting a Reasonable Recovery in Price Levels
Price is a signal of economic temperature and a key factor in boosting the confidence of micro-level entities. In recent years, the perceived coolness of the economic operation by micro-level entities in China has been significantly influenced by price factors.
On July 7th, at the 51st China and World Economy Forum hosted by Tsinghua University, a former Deputy Commissioner of the National Bureau of Statistics addressed the "temperature gap" between statistical data and public perception. He noted that this gap mainly stems from price declines, oversupply, and distribution structure. Enterprises and residents perceive issues with nominal income, insufficient demand, and inventory pressure, while statistical measures reflect real growth and increased production.
Promoting a reasonable price recovery is a key focus of this year's economic work. The 2025 Central Economic Work Conference, in its deployment of 2026 economic tasks, explicitly required that promoting stable economic growth and reasonable price recovery be important considerations for monetary policy.
The Deputy Director of the National Development and Reform Commission previously stated at a State Council Information Office press conference that promoting reasonable price recovery is a major objective of macro-control. This year, efforts will be made from multiple aspects including aggregate policies, structural policies, and reform policies, implementing a "policy mix" to continuously drive reasonable price recovery. In terms of structural policies, the focus is on expanding demand on one hand and curbing inward competition on the other. Regarding reform policies, the aim is to further rationalize price relationships, promote efficient resource allocation, and ensure safe and stable supply.
The Chief Economist at China Minsheng Bank stated that insufficient domestic demand remains the main weakness in price recovery. Against the backdrop where residents' income expectations have not fundamentally improved and enterprises continue with "price-for-volume" strategies, there is a lack of a sustained foundation for price increases in end-consumer goods. In this context, strong policies to expand domestic demand are needed to unblock the transmission of prices.
Recently, the State Council officially approved the "15th Five-Year Plan for Expanding Consumption". This is China's first national-level five-year special plan in the consumption field, with the core goal of raising the household consumption rate. It outlines 28 key tasks and measures, coordinates goods and service consumption, builds a long-term consumption growth mechanism at multiple levels, and sets a target of reaching approximately 60 trillion yuan in total retail sales of consumer goods by 2030.
Last July, the National Development and Reform Commission and the State Administration for Market Regulation drafted the "Price Law of the People's Republic of China (Amendment Draft for Public Comments)" and sought public opinions. This is the first amendment to the Price Law in its 27 years of implementation.
On July 7th this year, the Deputy Director-General of the Law Department at the State Administration for Market Regulation stated that work is actively advancing on amending the Price Law. The amendments are intended to further improve the rules for identifying unfair price practices such as low-price dumping, enhance price regulation and enforcement measures, improve the legal liability system, and prevent and stop businesses from engaging in bottomless "price wars."
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