Key Data Points: China's Consumer Price Index (CPI) for April increased by 1.2% year-on-year, exceeding the forecast of 0.9% and rising from the previous reading of 1.0%. The Producer Price Index (PPI) for April grew by 2.8% year-on-year, surpassing the expected 1.6% and accelerating from the prior figure of 0.5%.
Main Analysis: The year-on-year CPI rebounded in April, coming in above expectations, indicating overall mild and sustained inflation at a relatively high level. Upstream, international commodity prices continued to rise. Meanwhile, prices for domestically-oriented goods have seen a significant short-term upward shift in their price centers due to ongoing capacity management in key industries, a gradual improvement in domestic supply-demand dynamics, and rising costs, leading to a continued sharp rebound in PPI. In April, holiday effects strengthened, service prices recovered, and coupled with recovering domestic demand, the CPI rose year-on-year. With PPI also rebounding sharply, short-term inflation has continued its overall upward trend. China is currently in a peak season for goods consumption. The gradual implementation and effect of year-end policy financial tools, along with an overall acceleration in domestic infrastructure project construction following the Two Sessions, are contributing to continued improvement in domestic demand. Furthermore, robust overseas demand continues to provide strong short-term support for total external demand. Additionally, the ongoing, deepening capacity management in key domestic industries and the continuous optimization of market competition order are leading to an overall, sustained improvement in the supply-demand fundamentals for some domestically-oriented goods, pushing their price centers higher in the short term. Internationally, energy supply constraints due to the Middle East situation have led to a significant overall rise in crude oil price centers. Overall overseas commodity demand is rising, and with the general easing of Middle East tensions, weakened expectations for global monetary tightening, and a weaker US dollar, non-ferrous metal prices have rebounded in a volatile fashion, leading to a continued upward shift in overseas commodity price centers. Overall, upstream international commodity prices have moved significantly higher. Improved domestic demand and the ongoing capacity management in certain sectors are driving overall price improvements or increases in related industries. The PPI is expected to continue its recovery trend. The CPI rose month-on-month. In the next stage, with further enhancement and gradual effectiveness of domestic service consumption policy stimuli, and the continuous relay of policies promoting the replacement of old consumer goods, domestic demand has some support. Moreover, as capacity management in some sectors continues to advance, supply-demand relationships are expected to improve further. Coupled with a lower high-base effect from the same period last year, the CPI is expected to experience a mild overall recovery and maintain a relatively high level. With the rapid recovery of PPI and CPI remaining at elevated levels, on one hand, corporate earnings have seen substantial repair and improvement, continuously strengthening support for the fundamental basis of the stock market. Although this may lead to weakened expectations for further monetary easing, the central bank maintains ample market liquidity, limiting the impact on equities. On the other hand, it elevates long-term inflation expectations, leading to stronger government bond yields and negatively impacting bond prices. Risk Factors: Intensified US-China strategic competition, domestic stimulus policies falling short of expectations, and tighter-than-expected liquidity conditions.
1. China's April CPI Rebounds Slightly, Exceeding Market Expectations The April CPI grew by 1.2% year-on-year, compared to a forecast of 0.9% and a previous reading of 1.0%, marking a 0.2 percentage point increase from the previous month. The carryover effect from last year's price changes contributed approximately 0.5 percentage points to the year-on-year CPI figure. The new price increase effect was 0.7%, and together these factors led to the CPI's year-on-year rebound. The rise in the CPI year-on-year growth was mainly influenced by changes in international crude oil prices and increased holiday travel demand. Food prices shifted from a 0.3% increase last month to a 1.6% decrease, a drop of 1.9 percentage points. Their impact on the year-on-year CPI changed from an upward pull of 0.05 percentage points last month to a downward drag of 0.28 percentage points. Within food, pork prices fell by 15.2%, with the decline widening by 3.7 percentage points from the previous month, contributing to a CPI decrease of approximately 0.29 percentage points, an expansion of 0.07% from last month. Fresh vegetable prices fell by 0.5%, a drop of 5.4 percentage points, contributing to a CPI decrease of about 0.01 percentage points, down 0.11% from the previous month. Fresh fruit prices fell by 1.0%, a decrease of 5.0 percentage points from the previous month, contributing to a CPI decrease of about 0.02 percentage points, down 0.10% from last month. Energy prices rose by 8.2%, an increase of 6.5 percentage points from the previous month, contributing to a CPI increase of approximately 0.56 percentage points, up 0.45%. The pull from energy on inflation strengthened further; among these, gasoline price growth expanded to 19.3%, contributing to a year-on-year CPI increase of about 0.56 percentage points. With the recovery of service consumption prices, a slowdown in the growth rate of durable goods prices, and a deceleration in the increase of gold jewelry prices, the core CPI rose by 1.2% year-on-year, up 0.1% from the previous month, driving an overall CPI increase of 0.89%, up 0.07% from the previous month. Among components, due to domestic demand and rising costs, prices for automobiles, household appliances, and communications recovered. However, the increase in precious metal jewelry prices decelerated sharply. Core goods CPI rose by 1.8% year-on-year, a slight increase of 0.1% from the previous month, driving a CPI increase of 0.46%, up 0.03% from the previous month. Within this, gold jewelry price growth continued to drop sharply to 46.9%, contributing to a CPI increase of 0.28%, down 0.11% from the previous month. Prices for household utensils and clothing rose by 2.6% and 1.6% respectively, with both growth rates recovering; prices for small cars were flat compared to the same period last year. Due to increased shopping and entertainment demand from residents during the Qingming and May Day holidays, core service prices rose by 0.9%, 0.1 percentage points higher than the previous month, contributing to a year-on-year CPI increase of about 0.44 percentage points, up 0.05% from the previous month. Among these, core services excluding rent rose by 1.6% year-on-year, contributing to a CPI increase of about 0.53%, up 0.06% from the previous month. Overall, core inflation saw a mild overall increase due to recovering growth in core goods and core service prices driven by costs, demand, and holiday effects. Despite the decline in food prices, the rise in energy prices contributed to an overall inflation rebound, which remains mild. The CPI rose by 0.3% month-on-month, higher than the seasonal average of 0.16%, compared to a forecast of -0.1% and a previous reading of -0.7%. The month-on-month increase was mainly driven by rising energy and travel service prices. Influenced by fluctuations in international crude oil prices, domestic energy prices rose by 5.7%, with the growth rate expanding by 0.9 percentage points from the previous month, contributing to a month-on-month CPI increase of about 0.39 percentage points. Among these, gasoline prices rose by 12.6%. Service prices shifted from a 1.1% decrease last month to a 0.5% increase, 0.2 percentage points above the seasonal level, contributing to a month-on-month CPI increase of about 0.22 percentage points. Among services, due to increased demand during the Qingming Festival holiday, the May Day holiday, and spring breaks in some regions, demand for travel services increased significantly. Prices for air tickets, vehicle rentals, travel agency fees, and hotel accommodation rose by 29.2%, 8.6%, 4.5%, and 3.9% respectively, all exceeding seasonal levels. These four items together contributed to a month-on-month CPI increase of about 0.17 percentage points. Medical service prices rose by 0.6%, contributing to a month-on-month CPI increase of about 0.04 percentage points. Food prices fell by 1.6%, with the decline narrowing by 1.1 percentage points from the previous month, contributing to a month-on-month CPI decrease of about 0.28 percentage points. Within food, as the weather warmed, fresh vegetables and fruits became abundant in the market, with prices falling by 6.4% and 2.3% respectively. Pork and aquatic products were in ample supply, with prices falling by 5.7% and 1.2% respectively. These four items together contributed to a month-on-month CPI decrease of about 0.28 percentage points. Egg prices rose by 3.4%, contributing to a month-on-month CPI increase of about 0.01 percentage points. Prices for industrial consumer goods excluding energy fell by 0.2%, remaining largely stable.
2. PPI Continues Sharp Increase, Far Exceeding Market Expectations The April PPI grew by 2.8% year-on-year, compared to a forecast of 1.6% and a previous reading of 0.5%. The year-on-year PPI increased by 2.3 percentage points from the previous month, marking the second consecutive month of sharp increase after 41 consecutive months of decline. Among components, prices for means of production rose by 3.8%, contributing to an overall industrial producer price increase of about 2.98 percentage points, up 2.17% from the previous month. Prices for means of subsistence fell by 1.0%, contributing to an overall decrease of about 0.23 percentage points, with the decline narrowing by 0.05% from the previous month. Within the 2.8% year-on-year PPI increase for April, the carryover effect was approximately -0.6 percentage points, while the new impact from this year's price changes was about 3.4 percentage points. Currently, influenced by the rapid rise in international commodity prices, increased demand in some domestic industries, and continuous optimization of market competition order, prices in some sectors continue to show positive changes. Among the major industries with price increases, mining and processing of non-ferrous metal ores rose by 38.9%, and smelting and pressing of non-ferrous metals rose by 22.5%. Together, these contributed to a PPI year-on-year increase of about 1.58 percentage points. Extraction of petroleum and natural gas rose by 28.6%, processing of petroleum, coal, and other fuels rose by 14.2%, and manufacture of raw chemical materials and chemical products rose by 8.9%. Together, these contributed to a PPI year-on-year increase of about 1.50 percentage points. Manufacture of electrical machinery and equipment rose by 3.6%, and manufacture of computers, communication, and other electronic equipment rose by 1.5%. Together, these contributed to a PPI year-on-year increase of about 0.46 percentage points. Among the major industries with price declines, manufacture of non-metallic mineral products fell by 5.5%, production and supply of electric power and heat power fell by 4.2%, manufacture of automobiles fell by 2.0%, and smelting and pressing of ferrous metals fell by 1.1%. Together, these contributed to a PPI year-on-year decrease of about 0.75 percentage points. The PPI rose by 1.7% month-on-month, with the growth rate expanding by 0.7 percentage points from the previous month. First, international input factors influenced price increases in domestic petroleum-related industries. Rising international crude oil prices drove up prices in domestic petroleum-related sectors. Among these, extraction of petroleum and natural gas prices rose by 18.5% month-on-month, processing of petroleum, coal, and other fuels prices rose by 16.4%, manufacture of raw chemical materials and chemical products prices rose by 8.3%, manufacture of chemical fibers prices rose by 5.6%, and manufacture of rubber and plastics products prices rose by 1.7%. Second, increased demand in some domestic industries drove prices higher. Rapid growth in computing power demand and accelerated electrification processes led to a 22.5% month-on-month increase in optical fiber manufacturing prices and a 3.2% increase in external storage device and component prices. Smelting and pressing of non-ferrous metals prices rose by 0.2%. The release of some coal restocking demand for power generation, coupled with increased non-power coal demand from chemical and metallurgical sectors, led to a 1.9% increase in mining and washing of coal prices. The ongoing advancement of equipment renewal in manufacturing drove increased steel demand, leading to a 0.6% increase in smelting and pressing of ferrous metals prices. Third, the continuous optimization of domestic market competition order led to price increases or narrowing declines in related industries. The deepening rectification of "involution-style" competition continued to show results. Manufacture of lithium-ion battery prices rose by 1.6% month-on-month, while manufacture of new energy vehicle prices fell by 0.1%, with the decline narrowing by 0.7 percentage points from the previous month.
3. Overall Inflation Continues to Recover China is currently in a peak season for goods consumption. The gradual implementation and effect of year-end policy financial tools, along with an overall acceleration in domestic infrastructure project construction following the Two Sessions, are contributing to continued improvement in domestic demand. Furthermore, robust overseas demand continues to provide strong short-term support for total external demand. Additionally, the ongoing, deepening capacity management in key domestic industries and the continuous optimization of market competition order are leading to an overall, sustained improvement in the supply-demand fundamentals for some domestically-oriented goods, pushing their price centers higher in the short term. Internationally, energy supply constraints due to the Middle East situation have led to a significant overall rise in crude oil price centers. Overall overseas commodity demand is rising, and with the general easing of Middle East tensions, weakened expectations for global monetary tightening, and a weaker US dollar, non-ferrous metal prices have rebounded in a volatile fashion, leading to a continued upward shift in overseas commodity price centers. Overall, upstream international commodity prices have moved significantly higher. Improved domestic demand and the ongoing capacity management in certain sectors are driving overall price improvements or increases in related industries. The PPI is expected to continue its recovery trend. The CPI rose month-on-month. In the next stage, with further enhancement and gradual effectiveness of domestic service consumption policy stimuli, and the continuous relay of policies promoting the replacement of old consumer goods, domestic demand has some support. Moreover, as capacity management in some sectors continues to advance, supply-demand relationships are expected to improve further. Coupled with a lower high-base effect from the same period last year, the CPI is expected to experience a mild overall recovery and maintain a relatively high level. With the rapid recovery of PPI and CPI remaining at elevated levels, on one hand, corporate earnings have seen substantial repair and improvement, continuously strengthening support for the fundamental basis of the stock market. Although rapid inflation increases lead to weakened expectations for further monetary easing, the central bank maintains ample market liquidity, limiting the impact of rapid inflation recovery on equities. On the other hand, sustained inflation recovery elevates long-term inflation expectations, leading to stronger government bond yields and negatively impacting bond prices.
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