Data from the National Bureau of Statistics indicates that in March, following the seasonal decline in consumer demand after the Spring Festival holiday, the Consumer Price Index (CPI) decreased by 0.7% month-on-month but increased by 1.0% year-on-year. The core CPI, which excludes food and energy prices, rose by 1.1% compared to the same period last year. Influenced by factors such as the rapid increase in international commodity prices and improved supply-demand dynamics in certain domestic industries, the Producer Price Index (PPI) increased by 1.0% month-on-month, marking the sixth consecutive month of growth. Year-on-year, PPI rose by 0.5%, the first increase after 41 consecutive months of decline.
The year-on-year growth of CPI in March remained moderate, though the rate of increase slightly eased to 1.0%. Prices of industrial consumer goods rose by 2.2%, accelerating by 1.1 percentage points from the previous month. Service prices increased by 0.8%, but the growth rate slowed by 0.8 percentage points compared to February. Food prices saw a modest increase of 0.3%, with the growth rate declining by 1.4 percentage points from the prior month.
He Xiaoying, Deputy Director of the Analysis and Forecasting Department at the Price Monitoring Center of the National Development and Reform Commission, noted that following the outbreak of conflict involving the US, Israel, and Iran, international crude oil prices surged significantly year-on-year. However, temporary regulatory measures implemented by the state substantially mitigated the impact of rising oil prices on residents' cost of living.
The month-on-month decline of 0.7% in CPI for March was primarily driven by seasonal decreases in food and service prices. Food prices shifted from a 1.9% increase in February to a 2.7% decrease in March. Service prices turned from a 1.1% rise to a 1.1% fall. Due to international import factors and recovering demand for some domestic products, prices of industrial consumer goods increased by 1.0%, with the growth rate expanding by 0.6 percentage points from the previous month.
Feng Lin, Executive Director of the Research and Development Department at Dongfang Jincheng, commented that the shift to a month-on-month decline and the moderated year-on-year increase in March's CPI align with typical post-holiday seasonal patterns. However, the significant rise in international crude oil prices during the month transmitted to the domestic market, exerting a noticeable upward pressure on the overall CPI.
Nationwide, the PPI in March turned from a 0.9% year-on-year decline in February to a 0.5% increase, representing the first positive reading after 41 consecutive months of decrease. Dong Lijuan, Chief Statistician of the Urban Department at the National Bureau of Statistics, highlighted two main characteristics of the PPI's year-on-year performance. First, international import factors led to price increases or narrower declines in related domestic industries. Prices in non-ferrous metal mining and dressing, as well as non-ferrous metal smelting and rolling processing, saw accelerated growth. The price index for petroleum and natural gas extraction turned from decline to growth, while the declines in prices for petroleum, coal, and other fuel processing, and for raw chemical materials and chemical products manufacturing, narrowed compared to February. Second, improved supply-demand conditions in certain domestic industries contributed to price increases. Continued optimization of market competition秩序 boosted prices for photovoltaic equipment and component manufacturing by 5.2% and for lithium-ion battery manufacturing by 2.5%. The growth of new growth drivers, accelerated expansion of "AI+", and rapid growth in computing demand pushed prices for optical fiber manufacturing up by 76.1%, external storage equipment and components up by 21.1%, and electronic specialty materials manufacturing up by 18.7%. Green transformation empowered development, with prices for biomass fuel processing and waste resource comprehensive utilization rising by 6.1% and 0.9%, respectively.
Pang Min, Special Senior Researcher at the National Finance and Development Laboratory, believes the turnaround in PPI to positive year-on-year growth was primarily driven by disruptions in the international energy market and a recovery in domestic producer goods prices. Significant increases in international crude oil prices, fueled by geopolitical risks, directly led to sharp rises in the petroleum and natural gas extraction sector, creating a chain reaction through industries like chemicals and metallurgy.
The PPI increased by 1.0% month-on-month in March, marking six consecutive months of growth. The growth rate expanded by 0.6 percentage points from February, representing the largest increase in 48 months. Among major industries, rapid price increases in domestic petroleum-related sectors, influenced by substantial rises in international crude oil prices, were the main contributors to the expanded month-on-month PPI growth. Prices for non-ferrous metal smelting and rolling processing increased by 1.0%, though the growth rate slowed by 3.6 percentage points from the previous month.
For the first quarter overall, CPI increased by 0.9% year-on-year, while PPI decreased by 0.6% year-on-year. The general price trend for the quarter is viewed positively. Wen Bin, Chief Economist at China Minsheng Bank, stated that the narrowing of the PPI-CPI "scissors gap" in March indicates an improvement in profit distribution between upstream and downstream industries. This is conducive to enhancing corporate operations and promoting employment and income growth for residents. Coupled with coordinated efforts from multiple departments following the National People's Congress sessions, which continuously aim to guide prices back to reasonable levels, the price situation is expected to continue improving in the next phase.
Looking ahead, Pang Min suggests that as spring consumer demand is gradually released, prices for some food items may stabilize and rebound. Combined with the ongoing recovery in service consumption, there is a possibility for the month-on-month CPI to turn positive again. With holidays like Labor Day approaching, service consumption is expected to experience a new wave of growth, potentially stabilizing and increasing prices for transportation, tourism, and catering. Simultaneously, the effects of capacity reduction in core food items like pork are gradually materializing, and their negative contribution to CPI is diminishing. From a macroeconomic perspective, with coordinated monetary and fiscal policies, consumer prices are likely to resume a moderate upward trend, aligning with the broader economic recovery. However, given uncertainties surrounding energy and international commodity prices, CPI movements are expected to remain温和 with fluctuations, making a sharp surge unlikely. Overall, it is probable that the month-on-month CPI could turn positive in the short term, while the year-on-year increase for the full year is expected to remain moderate.
Feng Lin noted that the rapid rise in PPI in March was mainly driven by imported supply shocks, with stronger price increases in mid- and upstream sectors. However, the momentum for price increases in downstream processing industries and consumer goods remains weak. This is partly because the cost impact of rising crude oil prices takes time to transmit down the industrial chain, but more importantly, because the real estate market continues its adjustment, and consumption and investment demand require further stimulation. The issue of insufficient effective demand remains unresolved, keeping persistent pressure on prices in downstream sectors closer to end-consumer demand. In this context, close attention is needed on the erosion of profits in downstream industries caused by rising costs and the difficulty in passing these costs through to final prices.
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