China's Producer Price Index (PPI) for April showed significant growth, exceeding market forecasts. Data released on May 11th indicated a month-on-month increase of 1.7% in April, marking the seventh consecutive month of growth and the largest rise since October 2022, with the growth rate expanding by 0.7 percentage points from March. Year-on-year, the PPI increased by 2.8%, surpassing the market expectation of 1.5%. This represents the fifth consecutive month of year-on-year growth, with the rate accelerating by 2.3 percentage points from the previous month.
The increase was primarily driven by the prices of production goods. In April, the price of production goods rose by 2.1% month-on-month, accelerating by 0.8 percentage points, and increased by 3.8% year-on-year, accelerating by 2.8 percentage points.
The "PPI-CPI spread" turned positive, reflecting that upstream price recovery is outpacing terminal consumption. As key indicators reflecting price changes, PPI and the Consumer Price Index (CPI) have different focuses. PPI measures price changes when industrial enterprise products are first sold, directly affecting the profits of upstream industrial enterprises and focusing on the production side. CPI measures price changes of consumer goods and services related to residents' lives, directly impacting the profits of downstream consumer industry enterprises and focusing on the consumption side.
The "PPI-CPI spread," the difference between the year-on-year growth rates of PPI and CPI in a given month, is used to observe changes in the profit distribution pattern between upstream and downstream enterprises by noting whether the spread is positive or negative and whether it is widening or narrowing. A positive spread indicates that upstream price increases are greater than downstream, meaning price rises in the industrial sector are higher than in the consumption sector, suggesting profits are being allocated more to upstream industrial enterprises.
A detailed breakdown shows that in April, month-on-month price increases for mining and raw materials industries expanded by 1.8 and 2.5 percentage points to 5.7% and 4.9%, respectively. Year-on-year increases for these sectors accelerated by 8.6 and 6.0 percentage points to 10.6% and 7.1%, respectively. The price of processed industrial goods rose by 0.4% month-on-month, with the growth rate slightly decelerating, while it increased by 1.5% year-on-year, accelerating by 0.6 percentage points.
Analysis indicates a structural recovery in PPI, with significant divergence in price restoration across upstream, midstream, and downstream sectors. Upstream raw material prices have seen notable increases, influenced by imported factors. Midstream manufacturing has followed moderately, driven by upstream cost transmission. Industries related to new growth drivers, benefiting from favorable supply-demand dynamics and strong pricing power, are expected to see continued price increases, while price rises for traditional processing and manufacturing will be limited. Downstream consumer goods are constrained by weak terminal demand, making it difficult for the PPI recovery to effectively transmit to CPI. A transition from structural recovery to comprehensive improvement in prices will still take time.
The year-on-year increase in April PPI accelerated significantly by 2.3 percentage points to 2.8%, far exceeding market expectations. The accelerated month-on-month increase in April PPI is still primarily driven by imported factors. The outbreak of conflict in late February disrupted crude oil supply, leading to a rapid surge in international oil prices since March, which has gradually transmitted to the domestic industrial chain. In April, the upward effect of international oil prices on domestic PPI for oil-related industries became more apparent. Month-on-month prices for oil and gas extraction, petroleum, coal and other fuel processing, raw chemical materials and chemical products manufacturing, chemical fiber manufacturing, and rubber and plastic products industries rose by 18.5%, 16.4%, 8.3%, 5.6%, and 1.7%, respectively. The growth rates accelerated by 2.7, 10.6, 4.7, 2.2, and 1.1 percentage points compared to March, constituting the main reason for the expansion of the month-on-month PPI increase in April.
From other contributing factors, domestic efforts to curb excessive competition have continued this year, leading to sustained optimization of market competition order in related industries and driving price improvements. In April, coal mining and washing industry prices rose by 1.9% month-on-month, and lithium-ion battery manufacturing prices increased by 1.6% month-on-month, with growth rates expanding by 1.8 and 1.5 percentage points, respectively, from the previous month. Prices for new energy vehicle manufacturing fell by 0.1% month-on-month, with the decline narrowing by 0.7 percentage points.
It is worth noting that the rise in coal prices in April was not only due to supply-side measures against excessive competition but also boosted by demand-side factors such as the release of domestic thermal coal inventory replenishment needs and high oil prices pushing up alternative non-power coal demand. Additionally, optical fiber manufacturing prices rose by 22.5% month-on-month, and external storage device and component prices increased by 3.2% month-on-month. This is attributed to the ongoing global investment boom in artificial intelligence (AI) this year, with domestic computing power demand also growing rapidly, continuously driving up prices in the chip industry chain.
Multiple factors are supporting a moderate rise in CPI. In April, the national CPI turned from a month-on-month decrease of 0.7% in March to an increase of 0.3%, which was 0.4 percentage points higher than the seasonal level. Year-on-year, the national CPI rose by 1.2%, with the growth rate expanding by 0.2 percentage points from the previous month.
Structurally, food prices were weaker than seasonal. April food prices fell by 1.6% month-on-month, lower than the historical average for the same period (a decrease of 1.0%). Energy prices continued to rise. Stalled negotiations have heightened market concerns about supply disruptions, pushing international crude oil prices higher and driving domestic energy prices up by 5.7% month-on-month, with the growth rate expanding by 0.9 percentage points from the previous month. Gasoline prices saw a month-on-month increase that expanded from 11.1% in March to 12.6% in April.
Core CPI, which excludes food and energy, showed a moderate increase. In April, core CPI turned from a month-on-month decrease of 0.7% in March to an increase of 0.2%, matching the historical average for the same period. Year-on-year, core CPI rose by 1.2%, with the growth rate expanding by 0.1 percentage points. Within this, service prices were stronger than seasonal. In April, service prices rose by 0.5% month-on-month, higher than the historical average for the same period (an increase of 0.3%).
Influenced by the Qingming Festival holiday, the Labor Day holiday, and spring breaks in some regions, travel service demand increased significantly. This drove tourism service prices to turn from a month-on-month decrease of 12.9% in March to an increase of 4.1% in April, higher than the historical average for the same period (an increase of 1.9%). Medical service prices saw a month-on-month increase that expanded from 0.1% in March to 0.6% in April, higher than the historical average (an increase of 0.2%). However, rental demand in most key cities has cooled, leading rental prices to turn from being flat month-on-month in March to a decrease of 0.1% in April.
Prices of industrial consumer goods remained largely stable. In April, prices of industrial consumer goods excluding energy fell by 0.2% month-on-month. Among them, due to increased production costs, prices for household appliances and communication tools rose by 0.2% and 0.5% month-on-month, respectively, both higher than seasonal levels. Transportation tool prices fell by 0.4% month-on-month, with the decline expanding by 0.2 percentage points, as sustained high international oil prices increased vehicle operating costs. Coupled with the impact of new energy vehicles and expectations for the implementation of the China 7 emission standard, sales of fuel vehicles have continued to decline, putting pressure on prices. Clothing prices fell by 0.3% month-on-month, lower than the seasonal level.
Multiple factors are supporting a moderate uptick in CPI. First, as measures to stabilize employment, expand domestic demand, and promote income growth take effect, residents' consumption willingness and capacity are gradually recovering, which will drive up prices for services and goods. Second, the Strait of Hormuz is currently in a dangerous state, with traffic volume far below pre-conflict levels. Substantial recovery of commercial shipping in the short term is difficult, making it highly likely that oil prices will remain high and volatile. Third, the base from the same period last year was low.
However, food prices may drag on CPI growth. Although recent initiatives have helped boost pork prices, the current inventory remains above a reasonable level. The oversupply situation has not fundamentally reversed. Coupled with warmer weather suppressing pork consumption demand, pork prices are expected to remain low in the second quarter. As vegetables and fruits gradually enter their peak supply season, prices will maintain a seasonal downward trend.
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