BEIJING — China's consumer and producer prices surged beyond expectations in April, fueled by soaring energy costs from the ongoing Iran war and a spike in holiday spending, according to official data released Monday by the National Bureau of Statistics.
The consumer price index, or CPI, rose 1.2 percent year-over-year in April, surpassing economists' forecasts of 0.9 percent growth compiled in a Reuters poll and accelerating from March's 1 percent increase. Producer prices, tracked by the producer price index or PPI, jumped 2.8 percent from a year earlier — the fastest pace since July 2022 — beating estimates of 1.6 percent and marking a sharp rebound from March's modest 0.5 percent gain, based on data from LSEG.
This reflationary trend comes after three years of deflationary pressures in China's factory sector, where prices had been declining for an extended period until turning positive in March. The data highlights a broader economic boost, though it masks underlying weaknesses in domestic demand.
At the heart of the price surge is the global energy shock triggered by the Iran war, which has severely restricted shipping through the Strait of Hormuz, a critical chokepoint for oil and raw materials. As the world's largest importer of crude oil, China has felt the ripple effects acutely. Retail gasoline prices skyrocketed 19.3 percent year-over-year in April, official figures show, while prices in non-ferrous metals mining climbed 38.9 percent and oil and gas extraction rose 28.6 percent.
Oil and coal processing prices also increased 14.2 percent, driven by heightened restocking of power-generation coal and growing demand for coal as an alternative in chemical and metallurgical industries amid the disruptions. Food prices, however, provided some counterbalance, falling 1.6 percent due to lower costs for pork and fresh produce. Excluding volatile food and energy components, the core CPI edged up to 1.2 percent from March's 1.1 percent.
Consumer inflation received an additional lift from seasonal factors, including travel and spending during the Qingming Festival, Labour Day holiday, and spring breaks in parts of the country. Preliminary official data indicated that consumer sales during the extended Labour Day holiday, which concluded on May 5, grew 14.3 percent year-over-year, outpacing the 13.7 percent increase seen during February's Lunar New Year period.
"These reflationary forces could be welcomed by Beijing, following three years of protracted deflationary pressures," analysts at Nomura noted in a report. However, the bank cautioned that this supply-side driven inflation could squeeze companies' profit margins and further dampen household consumption.
Dong Lijuan, chief statistician at the National Bureau of Statistics, attributed some of the producer price gains to factors beyond commodities. In a statement Monday, she said, "Aside from commodity costs, producer prices were also lifted by the growing appetite for artificial intelligence computing power, sending prices for fiber manufacturing and external storage equipment higher, as well as easing price competition across industries."
Despite these positive signals in prices, China's domestic economy shows signs of strain. Retail sales slowed sharply to 1.7 percent growth in March, missing forecasts, while the real estate sector continued its downturn with investment dropping 11.2 percent year-to-date through March — a steeper decline than the 9.9 percent fall in the same period last year.
China has mitigated the energy crisis through its strategic oil stockpiles and a diversified energy mix that includes renewables, though economists warn that these buffers have limits if the Strait of Hormuz blockade persists. Data released Saturday revealed that China's crude oil imports fell 20 percent in volume terms in April compared to the previous year.
On the trade front, the picture is brighter. Exports accelerated to 14.1 percent growth last month, pushing the trade surplus to $84.8 billion and positioning China for a third straight year of approximately a trillion-dollar surplus. The trade surplus with the United States has widened to $87.7 billion so far this year, a development likely to draw scrutiny during upcoming high-level talks.
Next week, U.S. President Donald Trump is scheduled to visit Beijing for a leaders' summit hosted by Chinese President Xi Jinping. The meeting aims to stabilize bilateral relations amid strains over trade imbalances, export controls, Taiwan, and the Iran conflict. Beijing, which recently hosted Iranian Foreign Minister Abbas Araghchi, has positioned itself as a mediator in efforts to reopen the Strait of Hormuz, according to economists at Goldman Sachs. They expect the Middle East tensions to be a key topic at the summit.
The inflation data and strong export performance suggest Chinese policymakers are likely to maintain their current stance until the second half of the year, unless economic conditions deteriorate sharply. "China's next policy move is more likely to be a cut than a hike," said Lynn Song, chief economist for Greater China at ING.
Zhaopeng Xing, chief China strategist at ANZ Research, forecasted full-year CPI at 1.2 percent, noting that consumer inflation should remain mild. He added that the PPI trajectory will depend on oil prices in the short term and Beijing's efforts to combat "involution" — intense internal competition — over the longer horizon.
Overall, while the April figures signal a welcome shift from deflation, they underscore the economy's vulnerability to external shocks and uneven recovery. As Beijing navigates these challenges, the outcomes of the U.S.-China summit could influence global markets and energy flows, with implications extending far beyond China's borders.