China’s inflation accelerated more than expected in April as the economic effects of the U.S.-Iran conflict began to ripple through the country, according to twin reports published by the National Bureau of Statistics on Monday.
Pricing pressure was evident both at the wholesale and retail level.
China PPI Continues to Rise, CPI Climbs Sharply
The consumer price index (CPI) rose 0.3% month over month (MoM) in April, reversing the deflation (-0.7%) seen in the previous month. Economists had expected a 0.1% drop for the month.
The annual CPI rate accelerated to 1.2% from 1%, ahead of the expected 0.9% rate.
Meanwhile producer prices climbed sharply (+2.8%), notably higher than March’s 0.8% rate and the consensus of 1.7%. The annual increase in the producer price index (PPI) marked the fastest in 45 months. PPI recovered from a 41-month decline in March as prolonged deflation threatened squeezing corporate margins and the Chinese government strives to shift the engine of the domestic economy’s growth to consumption, breaking free of manufacturing’s dominance.
Iran Conflict - the Driver
The intensification of the conflict between the U.S. and Iran in the Middle East since Feb. 28 has essentially triggered an oil shock as supply remains disrupted due to the blockade of the Hormuz Strait. The strait is a major oil chokepoint in the Persian Gulf through which about a quarter of the world’s crude and natural gas flow.
The Brent crude futures has gained about 46% since the onset of the Middle East conflict.
Brent Crude Futures (3-Month Chart)
Source: ICE
Trade data released by China Customs last week showed that the country’s crude oil imports fell 20% year over year (YoY) to 9.4 million barrels/day, marking the lowest level since July 2022, a period Imports of natural gas, both pipeline gas and liquified natural gas (LNG) also fell 13%.
The latest Middle East conflict is now 72 days old. The latest on the crisis shows that the U.S. President Donald Trump stated that the Iran conflict may not have run its course. While talking to reporters, Trump said Iran’s response to his administration’s offer is totally unacceptable.
With the end to the conflict dragging out, it remains to be seen how near-term pricing pressure in China would play out.
The revival in pricing growth is partly attributable to rising demand for artificial intelligence (AI), green technology and digital infrastructure, which has boosted prices in selected industrial segments.
Read Next: Nasdaq, S&P 500 Notch Fresh Record Highs — Can the Market Outrun Geopolitical and Macro Headwinds?
