China's producer price index (PPI) ended a 41-month decline and turned higher in March. The jump in global crude oil and other commodity prices due to the Iran war, along with the Chinese government's policy to curb ruinous competition, is seen as having some effect. Over the same period, the consumer price index (CPI) slowed due to a plunge in pork prices. Foreign media analyzed that to resolve deflation, household consumption ultimately needs to recover and consumer prices need to improve.
China's National Bureau of Statistics released March price indexes on the 10th. According to the release, PPI rose 0.5% from a year earlier, breaking a 3-year, 5-month downtrend. The figure beat the Reuters consensus of a 0.4% rise. PPI hit a yearly low of -3.6% in June–July last year and has steadily narrowed its decline in the second half.
However, the latest PPI increase appears to have been affected by a temporary rise in commodity prices due to the Iran war. Looking at March PPI gains by sector, mining, raw materials, and processing rose 2%, 1.1%, and 0.9%, respectively. In contrast, consumer goods fell 1.3%. By item: food -1.7%, clothing -1.1%, daily necessities -1.4%, and durables -1%.
According to CNBC, June Brent crude, the benchmark for global oil prices, is trading 33% higher than before the war. May West Texas Intermediate (WTI) rose 47% over the same period. In response, China's National Development and Reform Commission raised retail gasoline and diesel prices on the 7th, following an increase last month.
The statistics bureau said, "The PPI increase was due to the impact of import prices," adding, "Prices in the nonferrous metal mining and dressing industry rose 36.4% year over year, and prices in the nonferrous metal smelting, rolling, and processing industry rose 22.4%. Prices in the oil and gas extraction industry also turned higher from the previous month."
On top of that, the Chinese government's policy to curb ruinous competition also showed some effect. The statistics bureau said, "As supply-demand balance improved in some domestic industries, there were aspects where prices rose," explaining that easing ruinous competition improved prices in solar and battery manufacturing, and that the acceleration of artificial intelligence (AI) industry expansion lifted related manufacturing prices by as much as more than 70%.
CPI rose 1% from a year earlier. That was below the Reuters forecast of a 1.2% rise and slower than February's 1.3% increase. By institutional sector, other goods and services rose the most at 13.5%, followed by medical care (1.9%), clothing (1.6%), daily necessities and services (1.5%), education, culture and entertainment (1.1%), transportation and communications (0.9%), and food, tobacco, alcohol and dining out (0.4%). In particular, pork prices, considered a gauge of China's consumer price trend, fell 11.5% year over year, having a significant impact on CPI.
Foreign media said that while the PPI increase matters, the recovery of household consumption and CPI is ultimately more important. Bloomberg said, "A rebound driven by rising commodity prices does not necessarily mean the economic situation has improved," adding, "A one-off shock that occurs without resolving the problem of overproduction and without invigorating household consumption will end up shifting the burden onto producers." It added, "Firms are already struggling to pass higher costs on to buyers, and as a result, their profit margins are shrinking."