China's PPI-CPI Diverge, Global Pressures Mount
Consumer inflation in China slowed in May 2026, with the Consumer Price Index (CPI) rising only 1.2% year-on-year, missing the 1.3% forecast. However, producer price inflation (PPI) jumped 3.9% year-on-year, fueling rising costs for energy, chips, and non-ferrous metals. The divergence between the PPI and CPI was the largest since June 2022, indicating that cost pressures remain difficult to pass on to consumers.
Weakening domestic demand has made it difficult for manufacturers to raise prices, resulting in industry margins being squeezed. Although energy and raw material prices surged due to the Iran war and the AI investment boom, prices for key consumer goods remained manageable, with some categories, such as pork, even recording significant declines.
Core CPI, which captures food and energy prices, rose 1.1% year-on-year, down from 1.2% the previous month. Meanwhile, prices for raw materials for the electronics, metals, and energy industries surged by double digits, triggering higher production costs in the manufacturing and mining sectors.
Sharp increases in input prices have impacted metal, oil, and gas producers, resulting in significant factory output prices that haven't been fully adjusted for consumers. This has put pressure on corporate profits, even though household consumption hasn't been affected.
Economic analysts project this situation will keep consumer inflation low while industrial costs remain high. "China is moving from deflation to low inflation, but profits and wages in many industries remain depressed," said Lynn Song, Chief Economist at ING Bank. Surging global energy and raw material prices have further added to the economic cushion.
The impact on global markets is quite significant: gold prices are trending higher due to inflation concerns and energy volatility, oil prices remain high due to tight demand and supply, while the dollar is strengthening against most Asian currencies as investors seek safe havens amidst global production and price projections. (asd)
Source: Newsmaker.id
