Data released by the National Bureau of Statistics on the 11th shows that in April, China's Producer Price Index (PPI) increased by 2.8% year-on-year, with the growth rate expanding by 2.3 percentage points from the previous month. On a month-on-month basis, it rose by 1.7%, with the growth rate expanding by 0.7 percentage points from March. "The significant expansion in both the month-on-month and year-on-year PPI growth in April was primarily driven by rising international oil prices and their accelerated transmission to related domestic industries. Additionally, domestic 'anti-involution' measures and price increases in the semiconductor industry chain also contributed to the acceleration of PPI growth," said Feng Lin, Executive Director of the Research and Development Department at Dongfang Jincheng. "Since March, international oil prices have surged rapidly and gradually transmitted to the domestic industrial chain. In April, the upward impact of international oil prices on the PPI of domestic petroleum-related industries became more evident," Feng Lin added. The data reflects the driving effect of rising international crude oil prices on price increases in domestic petroleum-related industries. On a month-on-month basis, in April, prices in the oil and natural gas extraction industry increased by 18.5%, prices in the petroleum, coal, and other fuel processing industry rose by 16.4%, prices in the chemical raw materials and chemical products manufacturing industry increased by 8.3%, prices in the chemical fiber manufacturing industry rose by 5.6%, and prices in the rubber and plastic products industry increased by 1.7%. Dong Lijuan, Chief Statistician at the Department of Urban Surveys of the National Bureau of Statistics, stated that, on a month-on-month basis, increased demand in certain domestic industries has driven price increases. "In April, rapid growth in computing power demand and the acceleration of the electrification process led to a 22.5% increase in optical fiber manufacturing prices and a 3.2% increase in external storage device and component prices; non-ferrous metal smelting and rolling processing industry prices rose by 0.2%. The release of demand for thermal coal inventory replenishment, coupled with increased non-power coal demand from chemical and metallurgical industries, pushed up prices in the coal mining and washing industry by 1.9%. The ongoing renewal of manufacturing equipment drove increased steel demand, leading to a 0.6% price increase in the ferrous metal smelting and rolling processing industry." Simultaneously, the continuous optimization of domestic market competition order has led to price increases or narrowing declines in related industries. "The effectiveness of in-depth efforts to curb 'involution-style' competition continues to show. In April, lithium-ion battery manufacturing prices increased by 1.6% month-on-month, while new energy vehicle manufacturing prices decreased by 0.1% month-on-month, with the decline narrowing by 0.7 percentage points from the previous month," Dong Lijuan said. In the view of Wen Bin, Chief Economist at China Minsheng Bank, producer goods prices were the main driver. "In April, producer goods prices increased by 2.1% month-on-month, with the growth rate expanding by 0.8 percentage points from the previous month; year-on-year, they rose by 3.8%, with the growth rate expanding by 2.8 percentage points." "Looking at the breakdown, in April, mid- and upstream industry prices showed strong upward momentum driven by costs, while downstream price increases were relatively weak. This reflects the ongoing challenge of insufficient effective demand that still needs to be addressed," Feng Lin noted. Regarding the impact of price changes, interviews were conducted with several companies. Ningxia Kaichen Electric Group Co., Ltd., a manufacturer of high and low voltage complete electrical equipment, connects upstream raw materials with downstream power infrastructure projects. Song Xiangguo, the company's financial director, stated that currently, core raw material costs such as copper and steel have risen significantly, while it is difficult to increase terminal product prices, facing the dilemma of "rigidly climbing costs and blocked price transmission." A relevant person in charge at Sunward Intelligent Equipment Co., Ltd. mentioned that in April, due to rising prices of bulk raw materials, there were some price increases in the procurement process, and it is anticipated that raw material prices will continue to rise subsequently. Lan Rong, financial director of Ningxia Rongguang Energy-saving Technology Industrial Co., Ltd., stated that recent raw material purchase prices have increased by about 15% compared to the beginning of the year, with a single-month increase of 2%-3% in April. The rise in raw material prices directly leads to increased procurement costs for the enterprise, but the adjustment in terminal product prices is low, compressing profit margins. Looking ahead to the next stage, Wen Bin believes that the PPI will show a pattern of structural recovery, with significant differentiation in price restoration across upstream, midstream, and downstream sectors. "Upstream raw material prices are significantly influenced by imported factors, showing notable increases. Midstream manufacturing is following up moderately driven by upstream cost transmission. Among them, new momentum industries, due to favorable supply-demand dynamics and strong pricing power, will see sustained price increases, while traditional processing and manufacturing industries will have limited price growth. Downstream consumer goods, constrained by weak terminal demand, may see prices remain largely flat. This makes it difficult for the PPI recovery to effectively transmit to the CPI, and it will still take time for prices to move from structural recovery to comprehensive improvement." "Entering May, the prospects for the U.S.-Israel-Iran conflict still face significant uncertainty. As previous oil price increases continue to transmit through cost channels to the domestic industrial chain, the upward push from high oil prices on the domestic PPI will still be evident, but the marginal pushing effect may significantly weaken. At the same time, with the deepening of 'anti-involution' efforts, continued price increases in the semiconductor industry chain, and policy acceleration supporting industrial product demand, it is expected that the month-on-month PPI will continue to rise in May, although the growth rate may significantly decelerate. On a year-on-year basis, due to a further lower base from the same period last year, it is expected that the year-on-year PPI growth in May will accelerate to around 3.5%," Feng Lin analyzed.
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