Market Update: Pricing Momentum Shifts to Technology

August CPI rose 0.4% month-on-month after a 0.1% decline in July, lifting the year-on-year rate to 0.8%. Core CPI recovered to 1.0%. PPI rose 0.4% month-on-month against a 0.7% fall, widening year-on-year growth to 3.8%. Headline readings completed a full round trip in two months. The structural readings held one direction throughout, and matter more for investors.

Indicator	Aug-26	Jul-26	Comment
CPI (YoY)	0.80%	0.50%	Rebound driven by wider energy price gains
Core CPI (YoY)	1.00%	0.90%	Stable near 1%; domestic demand pricing steady
CPI (MoM)	0.40%	-0.10%	Turned positive; petrol contributed c.0.21pp
PPI (YoY)	3.80%	3.50%	Widened on imported factors and technology demand
PPI (MoM)	0.40%	-0.70%	Turned positive
Electronic equipment PPI (YoY)	5.30%	4.40%	Second month of acceleration — the core signal
Source: National Bureau of Statistics, compiled by iFAST Research Data as at August 2026

Headline Inflation Is Still Oil-Driven

Oil explains most of the July–August swing. In July, transport fuel prices fell from 15.3% to 0.8% year-on-year, dragging both CPI and PPI lower. In August, petrol rose 7.2% month-on-month and 9.3% year-on-year, adding roughly 0.28pp to headline CPI. On the PPI side, oil extraction, refining, organic chemicals and non-ferrous smelting together contributed about 0.31pp to the monthly increase.

The two months moved in opposite directions because of the same driver. Headline inflation therefore provides limited information on domestic demand. Core CPI is the stable series: 1.0%, then 0.9%, then 1.0% again. Domestic demand pricing neither weakened in July nor strengthened in August.

This is consistent with our Q2 GDP review. An energy mix dominated by coal and renewables, diversified supply and ample strategic reserves dilute the pass-through from crude oil into domestic prices. The dilution works in both directions.

Technology Pricing Continues to Accelerate

Technology prices moved one way while headline readings swung. Electronic equipment PPI rose from 3.3% to 4.4% to 5.3%, and electrical machinery from 5.1% to 5.7% to 5.9%. Both accelerated through the July decline and the August rebound. Month-on-month, electronic circuit manufacturing rose 3.5% and virtual reality equipment 1.9%. Notably, the statistics bureau cited demand from industrial upgrading alongside imported factors as the two key drivers of the August PPI increase.

Price gains have now reached consumers. Mobile phone, tablet and data storage prices each rose above 2% month-on-month in August, attributed to computing demand. Memory price increases had previously appeared only at the factory gate; this is the first time they register in consumer prices.

This matters for the margin question. Upstream price increases are a cost for domestic device assembly, not a benefit. Consumer prices rising in parallel indicates costs are being passed through, so margin compression risk is smaller than we previously estimated. Whether end-price increases hold depends on demand tolerance, which subsequent data will test.

Pricing Strength Is Reaching Earnings

Prices are not the conclusion; profits are. Electronics-sector profits rose 18.5% year-on-year in January–July, over 80% of the industry’s total profit increase, concentrated in computing and memory chip manufacturing. Pricing strength is now translating into earnings.

Index data points the same way. The CSI All-Share Information Technology Index posted Q1 revenue growth of 20% and earnings growth of 74%. With capacity fixed and costs relatively rigid, most incremental revenue settles as profit. This profit sensitivity is the core mechanism behind hardware earnings in this cycle. Continued price acceleration suggests it persists into the next reporting period, though industrial profits are cumulative and lagged, so monthly prices do not map mechanically onto quarterly earnings.

Tencent Cloud provides company-level confirmation. It raised prices on selected services in May, citing higher storage costs. The pass-through shows improving pricing power at the platform level. Together with August consumer electronics prices, cost pass-through is now visible in both services and physical goods.

Evidence pointing the other way should be noted. Automotive factory-gate prices remain negative and rank among the main PPI drags, alongside electricity and heat, non-metallic minerals and pharmaceuticals. Food prices are still down 1.4%. Pricing power is converging into a few segments rather than recovering across manufacturing. Our portfolio conclusions are narrow for that reason.

Price Composition Matters for Earnings

For equity investors, composition matters more than level, because it determines who owns the profit. Oil-driven increases transfer profit from mid- and downstream manufacturers to upstream resource holders and overseas producers; listed Chinese companies are net payers in aggregate. Technology-driven increases retain profit onshore, concentrated in the electronics and equipment chains we focus on.

July and August differed in support, not in level. The energy contribution was negative then positive and largely offsetting. The technology contribution was positive in both months and widened. Stripping out energy noise, the direction of improvement is unambiguous.

Policy Implications: Look Beyond One Month

We argued in our Q2 GDP review that a positive deflator produces passive easing through real interest rates, reducing the need for active cuts. July partly reversed that mechanism; August partly restored it. The round trip shows why single-month prices are a poor guide to policy.

The structural conditions supporting easing have not changed. Price swings are driven by imported factors, which the central bank treats as supply shocks; firms facing cost compression need targeted support more, not less. Bank net interest margins remain at historical lows, and large-scale policy bond issuance requires low rates. The renminbi issue is the pace of appreciation, not depreciation pressure.

Quantitative tools have returned to the official toolkit and offer more flexibility than rate cuts, so they will likely come first. What matters for equities is whether the discount rate path remains downward. Recent data has not changed it. With global rates rising and domestic rates falling, onshore technology assets gain a relative valuation advantage alongside improving earnings.

Risk Factors

• Oil-price volatility: A renewed oil spike could compress downstream margins and constrain policy flexibility, while a sharp decline would weaken headline reflation.

• Narrow price recovery: Automotive and general consumer goods show no inflection and food prices remain negative. Stalled supply-side consolidation would make price improvement uneven.

• Sustainability of end-price increases: Consumer electronics price gains are cost-driven. If demand tolerance is insufficient, higher prices may come at the expense of volumes.

• Global AI capex and the memory cycle: Electronic equipment prices sit downstream of global computing capex, with supply momentum currently ahead of demand. A capex slowdown would show up here first.

Recommended Vehicles

Our conclusion is narrow: the price recovery is real and reaching earnings, but concentrated in electronics and equipment. With sub-sector rotation sharp and timing costly, high-purity broad-based vehicles remain more robust than single-stock selection. The three below correspond to the three links in the evidence chain.

Vehicle	Ticker	Market / Domicile	Benchmark Index	Evidence
GF CSI All-Share IT ETF	159939.SZ	Shenzhen Stock Exchange	CSI All-Share Information Technology Index	Electronic equipment PPI and sector profits
iShares Hang Seng TECH ETF	3067.HK	Hong Kong Stock Exchange	Hang Seng Tech Index	Cloud cost pass-through
T. Rowe Price Funds SICAV – China Evolution Equity Fund	LU2187417386	Luxembourg (UCITS)	MSCI China All Shares Index	Electrical machinery price gains
Source: Fund managers and index providers (public disclosures), compiled by iFAST Research

The GF CSI All-Share IT ETF offers the most direct exposure to the sectors where pricing and earnings are improving. Its benchmark is concentrated in electronic equipment, semiconductors and related hardware.

The iShares Hang Seng TECH ETF captures the platform side of the chain. Improving cost pass-through at cloud providers points to better pricing power and unit economics, which domestic price statistics do not capture and valuations do not yet reflect.

The T. Rowe Price China Evolution Equity Fund broadens exposure beyond pure IT into industrial and equipment segments where pricing is also improving. It holds industrials and commercial services well above benchmark weight.

These positions correspond to a medium- to long-term view. Transmission from prices into revenue and profit typically takes several quarters, and monthly price volatility is not a basis for revising the framework. Investors can set relative weightings according to their own risk tolerance and horizon.

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