A surge in energy costs triggered by the war in Iran pushed up producer prices in China, snapping a more than three-year streak of factory deflation that has weighed on the world’s second-largest economy. The producer-price index rose 0.5% in March from a year earlier, the first increase since September 2022, according to data released Friday by the National Bureau of Statistics.
“The ‘bad’ inflation is at least better than deflation,” Zhaopeng Xing, senior China strategist at ANZ, said in a report. The shift offers a slight reprieve from the deflationary cycle fueled by industrial overcapacity and weak domestic demand, but higher energy costs could further compress profit margins if end-user demand remains tepid.
The March PPI reading of 0.5% year-over-year was a sharp reversal from the 0.9% decline recorded in February. The primary driver was a 5.2% year-over-year jump in prices for the oil and natural-gas extraction industry, which had fallen 13% in the previous month. Meanwhile, China’s consumer-price index (CPI) rose 1.0% in March, a slight moderation from the 1.3% increase in February.
The end of producer price deflation in China could have global implications, potentially easing deflationary pressures on goods exported worldwide. However, the core issue of weak domestic demand, exacerbated by a prolonged property market downturn, persists. Without a corresponding rise in consumer spending, Chinese manufacturers may struggle to pass on higher input costs, squeezing profitability and potentially impacting industrial output and the performance of related stocks on the CSI 300 and Hang Seng Index.
This article is for informational purposes only and does not constitute investment advice.
