ING’s chief economist for Greater China, Lin Song, notes that China’s CPI inflation eased to 1.0% year-on-year after the Lunar New Year, while the PPI turned positive for the first time since 2022. The report highlights rising energy and transportation fuel costs, suggesting further upside to inflation and a gradual move away from established deflation expectations in China.
Energy-driven price pressures support reflation
“The sharp decline in prices is consistent with China’s typical seasonality around the Lunar New Year holidays. More importantly for the coming months, we are starting to see the impact of higher energy prices in the data. The subcategory for transportation fuel costs increased 10.0% MoM in March, while gasoline prices have increased much less than crude oil prices in China. After coming in at -9.7% YoY in the first two, this increase is 3.4% YoY. There is a possibility of further increase due to high energy prices in the coming months of the year.
“Producer Price Index inflation returned strongly to positive territory in March, ending a 41-month streak of deflation. PPI inflation rose to 0.5% annualized in March, slightly above market expectations and slightly below our forecast.”
“As we have discussed in recent months’ updates, the other key categories driving the PPI recovery are non-ferrous metals mining (36.4%) and smelting and processing (22.4%), which continued to post PPI increases over the month. Higher producer prices should eventually translate into reflationary momentum across the economy, which could help efforts to crack down on involution-type price competition.
“China has been locked in deflationary expectations for the past several years, with CPI inflation ending at or below 0.2% annually over the past 3 years.”
“All of these factors could raise the risk of a reversal this year.”
(This article was created with the help of an artificial intelligence tool and reviewed by an editor.)
