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BEIJING – China exited factory deflation after more than three years, as energy costs surged when the war in Iran disrupted swaths of global energy supply.
Producer prices rose 0.5 per cent in March from a year earlier after a drop of 0.9 per cent in the previous month, according to data released by the National Bureau of Statistics on April 10. The median estimate of economists surveyed by Bloomberg was 0.4 per cent.
But consumer inflation cooled more than expected to 1 per cent, down from 1.3 per cent in February, as a seasonal boost from holiday spending petered out. The core consumer price index, which excludes volatile items such as food and energy, slipped to 1.1 per cent.
The increase in producer prices is a result of “factors including a rapid surge in global commodities prices as well as improved supply-demand relationship in certain domestic industries,” NBS analyst Dong Lijuan said in a statement accompanying the data release.
China has been trapped in a deflationary spiral since late 2022, as a manufacturing glut and sluggish domestic demand led to intense price wars that eroded company profits and slowed wage growth. But with energy costs soaring after the United States and Israeli attack on Iran and Tehran’s retaliation, China’s factory prices climbed above zero faster than expected at the start of 2026, likely ending a record streak of economy-wide deflation.
Although China is more immune to oil shocks after years of investment in renewables and efforts to secure stable supplies, the disruption of global energy flows by the conflict in the Middle East is still driving up costs for producers. China already raised gasoline prices three times by roughly a quarter since the war began on Feb 28.
An official exit from deflation will be welcome news for policymakers in Beijing, who have vowed to “steer general price levels back into positive territory” this year.
A turnaround driven by higher commodity costs doesn’t mean the economy is better off.
A one-time shock that comes without draining excess industrial capacity or revving up household spending could leave factories footing the bill. Manufacturers are already finding it difficult to pass on the higher costs to buyers and end up with even thinner profits. BLOOMBERG
