Beijing, China – Official data released by China’s National Bureau of Statistics on Monday showed an unprecedented surge in factory gate prices in April, reaching their highest level since July 2022. This increase was directly driven by the repercussions of the war in the Middle East, which has disrupted global energy supply chains and sharply increased industrial production costs.
Factory inflation exceeds expectations
The Producer Price Index (PPI), a key measure of industrial production costs, rose 2.8% year-on-year in April.
This figure exceeded the average analyst forecast of a 1.8% increase and represents a sharp acceleration compared to the 0.5% growth recorded in March.
This marks the second consecutive month that the index has recorded positive growth, following a period of contraction that lasted for more than 40 consecutive months, beginning in late 2022. Dong Lijuan, a statistician at the National Bureau of Statistics, explained that “the rise in international crude oil prices has directly impacted domestic industrial sectors,” noting that the oil and gas extraction sector saw a monthly jump of 18.5%, while fuel refining prices rose by 16.4%.
The impact of closing the Strait of Hormuz
Analysts link this sudden surge to the de facto closure of the Strait of Hormuz since late February. This waterway is a crucial artery through which a fifth of the world’s oil and liquefied natural gas supplies pass.
With the United States imposing a blockade on Iranian ports since April, the supply crisis has worsened, pushing energy prices to levels that have burdened manufacturers in China, the world’s largest oil importer.
Consumer inflation and economic pressures
On the consumption front, the picture was not much different; the Consumer Price Index (CPI) accelerated to 1.2% year-on-year in April. This level exceeded Bloomberg’s forecast of 0.9%. The statistics office attributed this acceleration to fluctuations in international fuel prices, which affected transportation and service costs.
Chinese authorities face a dual challenge: while striving to shift domestic consumption from exports to the engine of growth, they are also grappling with imported inflationary pressures that could dampen household spending.
However, Capital Economics downplayed the likelihood of this surge turning into widespread inflation. It argued that “overproduction and weak domestic demand” would keep prices under control in the long term, in line with the government’s 2% inflation target for 2026.
