China’s producer prices rose at their fastest pace in more than three years in April, while consumer inflation also beat forecasts, as Iran war-driven commodity costs and holiday spending delivered a broader reflationary boost to the economy.
Consumer prices ticked up 1.2% in April from a year earlier, beating economists’ estimates of 0.9% growth in a Reuters poll, and accelerating from a 1% rise in March, according to data released by the National Bureau of Statistics on Monday.
The producer price index jumped 2.8% from a year ago, the highest since July 2022, beating economists’ forecast of 1.6%, and accelerating sharply from 0.5% in March, according to LSEG data. The surge came after factory-gate prices returned to growth in March after three years of declines, ending the longest deflationary streak in decades.
Price growth has been aided by a jump in global commodity prices, as the Iran war has throttled traffic through the Strait of Hormuz, disrupting energy and raw material flows.
Retail gasoline prices surged 19.3% from a year earlier in April, according to official data, while food prices fell 1.6%, dragged down by cheaper pork and fresh produce. Core CPI, stripping out volatile food and energy prices, rose 1.2% in April from a year earlier, edging higher from the 1.1% increase in March.
Consumer inflation was also in part boosted by travel spending due to the Qingming, Labour Day holidays and Spring breaks in certain parts of the country that.
Preliminary official figures showed consumer sales during the extended Labour Day holiday, which ended on May 5, also rose 14.3% from a year earlier, outpacing the 13.7% growth recorded during February’s Lunar New Year break.
The global energy shock from the Strait of Hormuz blockade has rippled across industrial sectors, with non-ferrous metals mining prices rising 38.9% from a year earlier and oil and gas extraction by 28.6%.
Oil and coal processing prices climbed 14.2%, driven by restocking demand for power-generation coal and rising demand for coal as an alternative energy source from the chemical and metallurgical industries.
Aside from commodity costs, producer prices were also lifted by the growing appetite for artificial intelligence computing power, sending prices for fiber manufacturing and external storage equipment higher, as well as easing price competition across industries, Dong Lijuan, chief statistician at NBS, said in a statement Monday.
“These reflationary forces could be welcomed by Beijing, following three years of protracted deflationary pressures,” according to Nomura. But on the flip side, the supply side-driven reflation risks further pressuring companies’ profit margins and dampening household consumption demand, the bank said.
Domestic demand in China has remained weak, with retail sales slowing sharply to 1.7% in March, missing forecasts. Real estate downturn has persisted, with investment falling 11.2% this year as of March, steepening from a 9.9% drop during the same period last year.
China, the world’s largest crude importer, has cushioned the worst of the energy shock through its strategic oil stockpiles and a diversified mix of renewable energy sources — though economists warn the buffer has limits as the disruption prolongs.
Consumer inflation is likely to remain mild, while the PPI outlook will hinge on oil prices in the near term and Beijing’s anti-involution push over the longer term, said Zhaopeng Xing, chief China strategist at ANZ Research, which forecasts full-year CPI at 1.2%.
Data released on Saturday showed China’s crude imports fell 20% in April in terms of volume from a year earlier.
Exports holding up
The country’s overall export growth, however, accelerated last month, rising 14.1% from a year earlier and pushing the monthly trade surplus to $84.8 billion — putting the country on track for a third consecutive year of roughly a trillion-dollar surplus.
That export strength, which has seen China’s trade surplus with the U.S. widen to $87.7 billion so far this year, will be in focus next week as U.S. President Donald Trump prepares to visit Beijing for a leaders’ summit.
Chinese President Xi Jinping is set to host Trump later this week, as both countries seek to stabilize a relationship strained by tensions over trade, export controls, Taiwan and the Iran war.
Beijing, which hosted Iranian Foreign Minister Abbas Araghchi last week, has positioned itself as an active intermediary in efforts to reopen the Strait of Hormuz, said economists at Goldman Sachs, expecting the Middle East conflict to feature prominently at the summit.
The stronger inflation print and robust exports are likely to keep policymakers on hold until the second half of this year barring a sharp deterioration in the economy, said Lynn Song, chief economist for Greater China at ING, adding that China’s next policy move is more likely to be a cut than a hike.
By CNBC