China’s April PPI jumped 2.8% year-on-year, a 45-month high and well above forecasts, while CPI rose 1.2%, as Iran war energy costs end a 41-month deflationary streak.
Summary:
- China’s producer price index rose 2.8% year-on-year in April, the highest reading since July 2022 and well above Reuters poll forecasts of 1.6%, ending a 41-month consecutive decline that began in late 2022, according to National Bureau of Statistics data published Monday
- The consumer price index rose 1.2% year-on-year, above expectations of 0.9% and accelerating from 1.0% in March; on a monthly basis CPI rose 0.3% against an expected dip of 0.1%
- Core CPI, excluding volatile food and fuel, came in at 1.2% year-on-year, up from 1.1% in March, suggesting price pressures are broadening beyond energy categories
- The NBS attributed the factory-gate surge to rising prices in non-ferrous metals, oil and gas and technology equipment, with the purchase price index rising 3.5%, the widest gap with selling prices since August 2024
- Economists warned that cost-driven inflation, as opposed to demand-driven price gains, risks hurting business margins and narrowing Beijing’s scope for further monetary stimulus, with PBOC rate cuts harder to justify as prices accelerate
- China’s state planner has raised retail petrol and diesel prices since the U.S.-Israeli strikes on Iran began in late February, and major airlines have increased domestic fuel surcharges, with higher living costs at risk of further subduing already sluggish household consumption
China’s producer prices surged to their highest level in nearly four years in April, with factory-gate inflation smashing forecasts and confirming that the Iran war’s energy cost shock has fundamentally altered the country’s price landscape after one of the longest deflationary stretches in its modern economic history.
The producer price index climbed 2.8% year-on-year, according to National Bureau of Statistics data released on Monday, comfortably exceeding Reuters poll forecasts of around 1.6% and representing a dramatic acceleration from the 0.5% reading in March. The result marks the highest PPI print since July 2022 and ends a 41-consecutive-month run of producer price deflation that had become one of the defining features of China’s post-pandemic economic narrative. That deflationary streak is now definitively over.
Consumer prices also surprised to the upside. The CPI rose 1.2% year-on-year in April, above expectations of 0.9% and up from 1.0% the previous month. On a monthly basis, prices rose 0.3% against forecasts of a 0.1% decline, a further sign that price momentum is building rather than fading. Core CPI, which strips out volatile food and fuel components, grew 1.2% year-on-year, nudging up from 1.1% in March and suggesting the inflationary impulse is broadening beyond energy-sensitive categories.
The NBS attributed the factory-gate acceleration to rising prices across non-ferrous metals, oil and gas and technology equipment. China’s state planner has increased retail petrol and diesel prices since the U.S.-Israeli military campaign against Iran began in late February, and major Chinese airlines have raised fuel surcharges on domestic routes, pushing the cost of living higher at a time when household consumption remains stubbornly weak against a backdrop of sluggish growth and a prolonged property market slump.
Economists struck a cautious note on the nature of the inflation shift. While the end of producer deflation might superficially appear positive, the price gains are being driven by external cost shocks rather than a genuine recovery in domestic demand, a distinction that matters considerably for the policy outlook. The purchase price index rose 3.5% in April, the widest gap with selling prices since August 2024, pointing to margin compression for manufacturers who are absorbing higher input costs without being able to pass them fully through to customers.
That dynamic complicates Beijing’s room to act. Policymakers have repeatedly pledged to stimulate domestic demand and reverse deflationary pressures, but cost-driven inflation narrows the People’s Bank of China’s scope for aggressive monetary easing. Rate cuts are harder to justify when consumer and producer prices are already rising faster than expected, leaving Beijing in the uncomfortable position of watching inflation accelerate for the wrong reasons while the underlying demand weakness that has plagued the economy for years remains unresolved.
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The scale of China’s PPI beat, coming in at 2.8% against forecasts of around 1.6% to 1.9%, confirms that the Iran war’s energy price shock is transmitting forcefully into the world’s largest manufacturing economy, with direct implications for global commodity demand and pricing. Elevated Chinese input costs are compressing corporate margins, particularly in petrochemicals and energy-intensive industries, which could temper industrial output and dampen crude processing run rates if margins deteriorate further. The yuan’s gain of up to 0.2% past 6.8 per dollar following the data, alongside a fall in long-dated bond futures, signals that markets are beginning to price out aggressive People’s Bank of China easing, which would remove a key potential tailwind for Chinese domestic demand and by extension oil consumption growth. The squeeze between a purchase price index rising 3.5% and weaker selling prices represents the widest such gap since August 2024, pointing to a margin compression dynamic that could constrain Chinese manufacturers’ capacity to absorb further energy cost increases.
This article was written by Eamonn Sheridan at investinglive.com.
