China’s producer prices rose for a third consecutive month in May, reaching their highest level since July 2022, as global energy shocks and stronger demand from artificial intelligence-related industries pushed upstream costs higher, official data showed on Wednesday. At the same time, consumer prices remained elevated but broadly stable, highlighting a persistent gap between rising production costs and muted household spending.
The producer price index increased 3.9% in May from a year earlier, according to the National Bureau of Statistics, exceeding a 3.8% forecast in a Reuters poll and accelerating from a 2.8% rise in April. On a monthly basis, producer prices rose 0.5%, slowing from a 1.7% increase in the previous month. The data marks the third straight month of gains and continues a shift away from a years-long deflationary trend, with the year-on-year reading first turning positive in March for the first time since September 2022.
The bureau attributed part of the increase to stronger demand for computing power, pointing to higher prices in sectors including non-ferrous metal smelting and rolling processing, as well as electronic equipment manufacturing. The rise in artificial intelligence-related demand has helped support certain industrial segments even as broader manufacturing conditions remain uneven.
However, the impact of rising input costs is not uniform across the economy. “In industries where demand is solid, such as AI, firms can pass on higher input cost and even charge end consumers a markup,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. He added that this is not the case for industries such as automotives, where pricing pressure remains more constrained.
Energy markets have been a key driver of inflationary pressure. Prices have surged since military strikes by the United States and Israel on Iran in late February, with disruptions linked to the Strait of Hormuz continuing to affect oil and gas flows from the Gulf. These developments have contributed to higher production costs globally and added pressure on China’s industrial sector.
Consumer prices in May rose 1.2% from a year earlier, unchanged from April and slightly below economists’ expectations of a 1.3% increase. The increase was driven mainly by higher gasoline, gold jewellery, and services prices, according to the statistics bureau. Food prices declined 1.7% year-on-year, with pork prices falling sharply by 16.1%. Domestic gasoline prices declined month-on-month but remained 23.5% higher than a year earlier.
Core inflation, which excludes food and energy, rose 1.1% from a year earlier. On a monthly basis, consumer prices fell 0.1%, matching expectations and reversing April’s 0.3% increase.
Market observers noted that while inflationary pressures are building in some parts of the economy, broader demand conditions remain subdued. “Food and property prices are helping suppress headline inflation for now. But rising prices more broadly suggest we’re moving from deflation into a low inflation environment,” said Lynn Song, chief economist of Greater China at ING.
Other analysts highlighted limited transmission from upstream to downstream prices. ANZ revised its producer price forecast for the year to 2% from 0.8% following the latest data, while keeping its consumer price forecast unchanged at 1.2%.
Industrial demand patterns continue to diverge, with vehicle sales declining sharply. Domestic car sales fell 22.3% in May and were down 19.7% over the first five months of the year, according to China Passenger Car Association data. Gasoline and diesel consumption also dropped 13% year-on-year in May after a larger decline the previous month, reflecting weaker transport demand.
Economists cited continued uncertainty linked to global energy markets and geopolitical developments, while noting that supply disruptions may ease over time, potentially reducing inflationary pressure in the consumer economy.
