China inflation beats estimates in April as Iran war pushes producer prices to three-year high

Chinese producer prices rose at the fastest pace in more than three years in April, while consumer inflation also beat forecasts, as spending on goods driven by the Iran war and holiday spending brought a broader boost to the economy.

Consumer prices rose 1.2% in April from a year earlier, beating economic estimates of 0.9% growth in a Reuters poll, and accelerating from 1% in March, according to data released by the National Bureau of Statistics on Monday.

The producer price index jumped 2.8% from last year, the highest figure since July 2022, beating the economic forecast of 1.6%, and rising sharply from 0.5% in March, according to LSEG data. The attack came after factory-gate prices returned to growth in March after three years of decline, ending the longest decline in decades.

The rise in prices was helped by a jump in global commodity prices, as Iran’s war halted traffic in the Strait of Hormuz, disrupting energy and raw material flows.

Retail fuel prices rose 19.3% from last year in April, according to official data, while food prices fell 1.6%, pulled down by cheaper pork and fresh produce. Core CPI, which excludes volatile food and energy prices, rose 1.2% in April from a year earlier, up from a 1.1% increase in March.

Consumer inflation was also partly boosted by travel costs due to the Qingming, Labor Day holidays and spring break in some parts of the country.

The first official figures showed consumer sales during the extended Labor Day holiday, which ended on May 5, also rose 14.3% from a year earlier, surpassing the 13.7% growth recorded over the New Year’s holiday in February.

The global energy shock from the Strait of Hormuz blockade has been most pronounced in industrial sectors, with non-ferrous metal mining prices up 38.9% from a year ago and oil and gas mining up 28.6%.

Oil and coal processing prices increased by 14.2%, driven by a recovery in demand for coal for power generation and increased demand for coal as an alternative energy source from the chemical and steel industries.

In addition to the cost of goods, the manufacturer’s prices were also raised by the growth of the desire to use the power of the computer for artificial intelligence, sending the production prices of fiber and external storage equipment higher, and reducing the price competition in all industries, Dong Lijuan, chief statistician at NBS, in a statement on Monday.

“This flexibility can be welcomed by Beijing, following three years of inflationary pressure,” according to Nomura. But on the other hand, supply-side-driven inflation risks pressure on corporate profits and reduced household consumption demand, the bank said.

Domestic demand in China remains weak, retail sales fell sharply to 1.7% in March, missing forecasts. The decline in real estate has continued, with investment down 11.2% this year since March, down from 9.9% in the same period last year.

China, the world’s biggest net consumer of crude, has averted the worst energy shock with its significant oil reserves and diverse mix of renewable energy sources – although economists warn that reserves are limited as disruptions continue.

Consumer inflation is likely to remain subdued, while the PPI outlook will depend on oil prices in the near term and Beijing’s continued anti-inflation in the longer term, said Zhaopeng Xing, chief China strategist at ANZ Research, which forecasts full-year CPI at 1.2%.

The country’s export growth, however, accelerated last month, rising 14.1% from a year ago and pushing the monthly trade surplus to $84.8 billion – putting the country on track for a third consecutive year of a trillion-dollar surplus.

That export strength, which has seen China’s trade with the US expand to $87.7 billion so far this year, will come into focus next week as US President Donald Trump prepares to visit Beijing for a summit of leaders.

Chinese President Xi Jinping is expected to host Trump later this week, as the two countries seek to stabilize a relationship that has been troubled over trade, export controls, Taiwan and the Iran war.

Beijing, which hosted Iranian Foreign Minister Abbas Araghchi last week, has positioned itself as an active mediator in efforts to reopen the Strait of Hormuz, said economists at Goldman Sachs, expecting the Middle East conflict to take center stage at the summit.

Strong inflation and strong exports are likely to hold policymakers until the second half of this year to prevent a major economic downturn, said Lynn Song, chief economist for Greater China at ING, adding that China’s next policy move is likely to be more subdued than upward.