Analysis | Driven by rising international oil prices and other factors, the year-on-year growth rates of CPI and PPI expanded in April

Ask AI · How do international oil price fluctuations affect domestic price transmission?

On May 11, the National Bureau of Statistics released April inflation data. In April, the Consumer Price Index (CPI) nationwide increased by 1.2% year-on-year, and rose by 0.3% month-on-month. The average from January to April shows that the CPI increased by 0.9% compared to the same period last year.

In April, the Producer Price Index (PPI) nationwide rose by 2.8% year-on-year and increased by 1.7% month-on-month. The purchase prices for industrial producers rose by 3.5% year-on-year and by 2.1% month-on-month. The average from January to April shows that the PPI increased by 0.2% compared to the same period last year, and purchase prices for industrial producers increased by 0.5%.

CPI rose modestly year-on-year in April, with a shift from decline to increase month-on-month

In April, influenced by fluctuations in international crude oil prices and increased travel demand during holidays, the CPI rose by 0.3% month-on-month, exceeding the seasonal level by 0.4 percentage points; the previous value was a decline of 0.7%. The CPI increased by 1.2% year-on-year, with the growth rate expanding by 0.2 percentage points from the previous month. Core CPI, excluding food and energy prices, rose by 1.2% year-on-year, maintaining a moderate rebound.

Feng Lin, Executive Director of Research and Development at Dongfang Jincheng, believes that the moderate increase in CPI month-on-month and the expanded year-on-year growth rate in April mainly reflect the significant rise in international crude oil prices that month, which transmitted to the domestic market and offset the impact of falling food prices.

According to data from the National Bureau of Statistics, affected by fluctuations in international crude oil prices, energy prices in China increased by 5.7% month-on-month in April, with an expansion of 0.9 percentage points from the previous month, contributing approximately 0.39 percentage points to the CPI month-on-month increase. Gasoline prices rose by 12.6%. Year-on-year, the prices of industrial consumer goods increased by 3.5%, with an expansion of 1.3 percentage points from the previous month, contributing about 1.06 percentage points to the CPI increase. Gasoline prices increased by 19.3%, contributing approximately 0.56 percentage points to the year-on-year CPI growth.

Food prices in April were relatively weak. Year-on-year, food prices shifted from a 0.3% increase last month to a 1.6% decline. Pork prices fell by 15.2%, with a larger decrease of 3.7 percentage points compared to last month, contributing about 0.29 percentage points to the year-on-year CPI decline. Fresh vegetables and fruits decreased by 0.5% and 1.0%, respectively. Beef, mutton, aquatic products, and eggs all increased in price, with growth rates between 1.0% and 6.2%.

Feng Lin believes that the decline in fresh vegetable and fruit prices in April is mainly due to seasonal downward trends after warmer weather, combined with the high base effect from the same period last year. The decline in pork prices is mainly due to slow capacity reduction in pig production and weak demand.

Regarding service prices, year-on-year, they increased by 0.9%, with an expansion of 0.1 percentage points from the previous month, contributing about 0.44 percentage points to the CPI year-on-year increase. Among services, the prices of basic public services remained relatively stable, with medical and educational services rising by 3.4% and 0.5%, respectively, collectively contributing about 0.25 percentage points to the CPI increase. Travel service prices increased by 3.7%, contributing about 0.13 percentage points. Small increases in labor services, including pet services, dining out, housekeeping, and vehicle repair and maintenance, with growth rates between 1.1% and 1.4%, collectively contributed about 0.10 percentage points.

Dong Lijuan, Chief Statistician of the Urban Department at the National Bureau of Statistics, pointed out that the increase in service prices in April was mainly influenced by the Qingming Festival holiday, the “May Day” holiday, and the spring break in some regions, which significantly boosted travel service demand.

Rising international crude oil prices and increased domestic demand in some industries led to larger month-on-month and year-on-year increases in April PPI

After the first increase in PPI year-on-year in 41 months last month, the April PPI growth rate continued to expand by 2.3 percentage points to 2.8%; the month-on-month increase also widened by 0.7 percentage points to 1.7%.

Year-on-year, in April, the main industries with price increases included non-ferrous metal mining and dressing, which rose by 38.9%, and non-ferrous metal smelting and rolling processing, which increased by 22.5%, collectively contributing about 1.58 percentage points to the PPI increase. The oil and natural gas extraction industry rose by 28.6%, the petroleum, coal, and other fuel processing industries increased by 14.2%, and chemical raw material and chemical product manufacturing increased by 8.9%, together contributing about 1.50 percentage points. Electrical machinery and equipment manufacturing increased by 3.6%, computer, communication, and other electronic equipment manufacturing increased by 1.5%, collectively adding about 0.46 percentage points to the PPI.

Dong Lijuan noted that the main features of the PPI month-on-month in April are: first, the influence of international input factors causing domestic oil-related industry prices to rise; second, increased demand in some domestic industries driving prices higher; third, ongoing improvement in domestic market competition order, leading to price increases or narrower declines in related industries.

Data from the National Bureau of Statistics show that in April, the prices of oil and natural gas extraction increased by 18.5% month-on-month, and the prices of petroleum, coal, and other fuel processing industries increased by 16.4%. Meanwhile, with the rapid growth in computing power demand and accelerated electrification, fiber optic manufacturing prices rose by 22.5% month-on-month, external storage devices and components increased by 3.2%, and non-ferrous metal smelting and rolling processing prices increased by 0.2%. The demand for coal for power generation was released as inventory replenishment needs, combined with increased demand in chemicals and metallurgy industries, leading to a 1.9% rise in coal mining and washing industry prices. Additionally, the continued effectiveness of deepening “involution-style” competition regulation is evident, with lithium-ion battery manufacturing prices rising by 1.6%, while new energy vehicle manufacturing prices decreased by 0.1%, narrowing the decline by 0.7 percentage points from last month.

In terms of categories, in April, the prices of producer goods increased by 3.8% year-on-year, contributing about 2.98 percentage points to the overall PPI level. The prices of consumer goods decreased by 1.0% year-on-year, contributing about 0.23 percentage points to the overall PPI level.

Feng Lin stated that the rapid rise in PPI in April is still mainly driven by supply-side input shocks, with strong upward momentum in upstream and midstream prices. However, downstream processing industries and consumer goods prices have weaker upward momentum, mainly because the current real estate market remains under adjustment, and consumption and investment demand need further stimulation. The problem of insufficient effective demand still needs to be addressed, causing downstream industries closer to end-user demand to continue to be under pressure. Under this context, attention should be paid to the erosion of downstream industry profits caused by rising costs and the difficulty in passing prices downstream.

The next phase of CPI is expected to gently rebound, and high oil prices may continue to push up PPI

Looking ahead at price trends, Wubin, Chief Economist at Minsheng Bank, believes that multiple factors will support a moderate upward trend in CPI. First, as measures to stabilize employment, expand domestic demand, and promote income increase take effect, residents’ consumption willingness and capacity will gradually recover, driving up service and commodity prices. Second, the Strait of Hormuz is currently in a “dangerous state of both fighting and navigation,” with shipping volume far below pre-war levels, making it difficult for commercial shipping to recover substantially in the short term, so oil prices are likely to remain high and volatile. Third, the base from the same period last year is relatively low.

However, Wubin also pointed out that food prices may drag down CPI growth. Although the National Development and Reform Commission has recently launched rotation storage of frozen pork to boost pork prices, the current pork supply remains ample, and rising temperatures suppress pork consumption, so pork prices are expected to stay low in the second quarter. Vegetables and fruits are entering peak supply seasons, and prices are expected to decline seasonally.

Regarding PPI, Feng Lin believes that entering May, the outlook for US-Iran conflicts remains highly uncertain. Brent crude oil spot prices are still volatile at high levels. As previous oil price increases continue to transmit through costs to the domestic industrial chain, high oil prices will continue to exert upward pressure on PPI, but the marginal effect may weaken significantly. Meanwhile, with the deepening of “anti-involution” efforts, the continuous rise in semiconductor industry chain prices, and policy acceleration after the Two Sessions supporting industrial demand, PPI is expected to continue rising month-on-month in May. Additionally, with the base from the same period last year further lowered, the year-on-year increase in PPI may accelerate to around 3.5%.

Western Securities analysts believe that re-inflation could become a catalyst for economic recovery, mainly in two ways: first, it helps improve nominal incomes for enterprises, governments, and residents; second, it reduces expected real interest rates, further boosting investment and consumption willingness. They expect this year’s real GDP growth rate to be no less than last year’s, with nominal GDP growth accelerating significantly.