China’s producer prices rise amid global energy shock, exiting long deflationary streak

SHENZHEN – Prices of goods leaving Chinese factories climbed for the first time in more than three years as global energy costs surged because of the war in Iran.

China’s producer price index rose 0.5 per cent in March 2026 compared with the previous year, snapping 41 consecutive months of decline, according to data released on April 10 by the National Bureau of Statistics.

Consumer prices rose 1 per cent year on year, down from the previous month’s 1.3 per cent but still coming in above 2025’s full-year reading of zero.

Some analysts say such imported inflation may do little to boost the economy and could end up hurting firms’ bottom lines and the domestic consumption which Beijing hopes to lift.

But others see a silver lining in a slight increase in prices, which could shake the world’s second-largest economy out of a years-long deflationary mindset.

For now, the latest figures are “a welcome step towards exiting deflation, which Beijing has targeted”, said Ms Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis, an investment bank.

But they do not yet mark a decisive turning point for China, she added, as the rebound appears driven mainly by imported energy costs rather than broad domestic demand.

China has been contending with a long streak of deflationary pressures that have weighed on its economy. Weak demand and excess supply have led businesses to slash prices, which squeezes profits and constrains wages, which in turn holds back new consumer spending.

Policymakers pledged in the government’s work report for 2026 to “steer general price levels back into positive territory”.

Beijing has moved to combat overcapacity and cut-throat competition plaguing its industries, and factory-gate prices have in recent months seen narrower declines.

The turnaround in producer prices in March stemmed from factors including a rapid rise in global commodity prices, said a statement by Ms Dong Lijuan, chief statistician at the National Bureau of Statistics.

Producer prices in the domestic oil and gas extraction industry surged 5.2 per cent in March, reversing a fall of 14.8 per cent in the first two months of 2026. Other energy and energy-related sectors such as coal mining and chemicals saw smaller declines.

Such inflation – driven by higher oil prices “imported” from abroad and not better domestic demand – is unlikely to lead to a broad-based recovery in firms’ profitability, said Mr Larry Hu, chief China economist at Macquarie, a financial services firm.

He noted that while upstream sectors like energy producers might benefit, downstream producers could struggle if they were unable to pass on higher input costs. This is as price-conscious consumers might be unwilling to foot the bill.

Barclays analysts observed in a note that factory-gate prices for consumer goods continued to contract in March, “underscoring the limited pricing power of downstream producers and the difficulty of passing higher input costs on to consumers”.

This could further compress firms’ margins, eating into wages and the domestic consumption which Beijing has been trying to boost, analysts warn.

Even as inflation works its way through the Chinese economy in the months ahead, some observers see a potential upside to a moderate rise in prices.

“Policymakers have been trying to break the cycle of low inflation expectations, which in turn suppressed corporate margins and wages,” said Ms Erica Tay, director of macro research at Maybank.

“Rising consumer prices, even if it is for cost-push reasons, can turn around inflation expectations, which have been subdued for some time,” she said.