China’s factory-gate prices returned to growth in March after 41 months of decline, while consumer inflation remained mild, with rising oil prices linked to Middle East tensions beginning to feed through to domestic prices. Analysts said that policymakers should guard against the negative spillovers from potential imported inflation in the Chinese economy, including higher costs for households and businesses. They stressed that sustained and healthy price growth hinges on stronger domestic demand, rather than cost-push pressures from global commodity markets. Although elevated oil prices may temporarily support inflation, their effects are likely to be uneven and short-lived, highlighting the importance of boosting consumption and stabilizing expectations to achieve a more sustainable and widespread price recovery.
The National Bureau of Statistics (NBS) said China’s producer price index turned positive in March, rising 0.5% year-on-year, marking the first year-on-year increase since the PPI slipped into negative territory in October 2022. Dong Lijuan, Chief NBS Statistician, attributed the year-on-year rise in the PPI mainly to a rapid increase in international commodity prices and improved supply and demand in some domestic sectors.
“Imported factors pushed up prices in related domestic industries or helped to reduce declines. Prices in some domestic sectors also edged up as supply and demand improved,” said Dong. She added that new growth drivers had continued to strengthen, as the “AI+” initiative gained pace and demand for computing power rose rapidly, helping lift prices in related sectors. On a month-on-month basis, the PPI rose 1% in March, marking its sixth straight monthly increase. The increase was 0.6 percentage points higher than in February, and the fastest increase in 48 months. The country’s consumer price index rose 1% year-on-year in March, easing from a 1.3% rise in February, said the NBS.
Analysts said that effectively expanding domestic demand will be crucial to sustaining a healthy price recovery in the Chinese economy. Mao Zhenhua, Chief Economist at China Chengxin International Credit Rating Co, said that although the CPI has shown a modest pickup, it has remained at a low level for 11 consecutive quarters and is still some distance from the reasonable target of around 2%. Mao said that rising oil prices would increase corporate costs and squeeze profit margins in the middle and lower parts of the supply chain, thereby limiting their ability to support a broader recovery in prices. “In the longer term, the key to breaking out of a low-price environment lies in expanding effective domestic demand,” he added, as reported by the China Daily.
