Key facts
- China's producer price index (PPI) rose 3.9% year-on-year in May, the highest since July 2022.
- The PPI increase exceeded the 3.8% forecast from a Reuters poll.
- Consumer prices (CPI) rose 1.2% year-on-year in May, matching the previous month's gain.
- Global energy price surges are the primary drivers of factory-gate inflation.
- Rising costs are impacting household consumption and potentially squeezing corporate profits.
China's producer prices rose for a third consecutive month in May, reaching their highest level since July 2022, driven by escalating global energy costs. The producer price index (PPI) increased 3.9% year-on-year, surpassing the 3.8% forecast and accelerating from April's 2.8% rise. This marks the highest PPI reading since July 2022 and signals an end to a prolonged deflationary streak that began in September 2022.
Consumer prices also remained elevated, with the consumer price index (CPI) rising 1.2% year-on-year, matching April's pace but falling slightly short of economists' expectations. While food prices declined, increases in gasoline, gold jewelry, and services prices contributed to the overall rise. Monthly CPI edged down 0.1%, contrary to the previous month's increase.
The surge in factory-gate inflation is attributed to disruptions in oil and gas flows from the Gulf due to conflict and the ongoing closure of the Strait of Hormuz, which continues to impact energy prices. Stronger demand for computing power also contributed to price increases in sectors like non-ferrous metal smelting and electronic equipment manufacturing.
However, the rising costs of living may dampen household appetite for discretionary spending, and manufacturers not in advanced sectors may struggle to pass higher input prices to consumers. Policymakers face challenges in supporting the job market and bolstering domestic demand amid these headwinds.