Key insights
- China's April CPI and PPI exceeded expectations, driven by rising energy costs and supply disruptions linked to geopolitical tensions. The PPI surge, the highest since July 2022, raises concerns about cost-push inflation impacting business margins and limiting stimulus options. While this offsets deflationary trends, weak domestic demand suggests a broader inflation rebound is unlikely. Higher input costs for Chinese manufacturers could negatively impact earnings for US companies reliant on Chinese supply chains.
Investing.com-- Chinese consumer price index inflation grew more than expected in April, while producer prices rose sharply on rising energy costs and supply disruptions stemming from the Middle East conflict.
CPI grew 1.2% year-on-year in April, data from the National Bureau of Statistics showed on Monday. The print was higher than expectations of 0.9% and accelerated from the 1% rise in the prior month.
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Producer price index inflation was a standout, surging 2.8% y-o-y– much more than expectations of 1.7% and substantially higher than the prior month’s reading of 0.5%.
Producer inflation grew at its fastest pace since July 2022, with the increase tied largely to higher input costs, especially those of petrochemicals and fuel.
Monday’s data indicated that the Iran war was offsetting a long-entrenched deflationary trend in China, especially as local fuel and transportation prices rose due to disruptions stemming from the conflict.
China is a major importer of crude from Iran, with a U.S. naval blockade of the country and the closure of the Strait of Hormuz largely cutting off the country’s oil and gas supplies.
But economists have warned that a cost-based inflationary shift, rather than a demand-based one, threatened to hurt the Chinese economy more. Higher input costs stand to hurt business margins and narrow the scope for more stimulus from Beijing.
"It is possible that cost-push pressures work their way through to wider inflation over the coming months," Capital Economics analysts said in a note.
But they said that with domestic demand growth still sluggish, a broader rebound in Chinese inflation still appeared distant.
China has been struggling with pronounced deflation since the COVID-19 conflict, as local demand weakened persistently. Overproduction at Chinese factories added to this trend, with inflation remaining subdued despite persistent reflationary efforts by Beijing.