Oil price rises drove a sharp year-on-year rebound in China’s April PPI

Overview

The report focuses on China’s April inflation data. Goldman Sachs notes that April China inflation continued to show an oil-driven reflation pattern: CPI rose modestly year-on-year to +1.2%, supported mainly by higher oil prices and tourism-related service prices, while falling food prices partially offset this; PPI rose from March’s +0.5% to +2.8% year-on-year, mainly driven by higher prices in energy and related chemicals.

Core views

The core view is that April PPI was far above expectations and that the rebound came mainly from upstream industries rather than broad end-user demand. Oil and gas and chemicals together explain a large portion of the PPI year-on-year increase, indicating that input costs and upstream prices are the main source of this reflation cycle. Goldman Sachs believes PPI may first be overshooting and then gradually slow over the next few quarters; therefore it raised its 2026 PPI forecast, while lowering the 2027 forecast due to a higher base effect.

Analysis framework

The report uses a CPI and PPI subcomponent decomposition, breaking inflation changes into food, non-food, core CPI, producers’ goods, consumer goods, as well as contributions from upstream sectors such as oil and gas and chemicals, and compares actual data with Goldman Sachs forecasts and Bloomberg consensus expectations. Month-on-month figures use Goldman Sachs seasonally adjusted annualized basis.

Methodology notes

• macro inflation decompositionCPI and PPI component contribution analysis

  Decompose overall inflation into food, non-food, core, producers’ goods, consumer goods, and contributions from upstream sectors.

  This approach is used to determine whether the inflation rise is driven by end-user demand, food prices, or upstream cost shocks from energy and chemicals.

• forecast revisionfull-year inflation forecast adjustment after upside surprise

  Revise the full-year path based on the fact that April PPI was significantly above expectations.

  Goldman Sachs raised its full-year 2026 PPI forecast from year-on-year +1.2% to +2.0%, while lowering the 2027 forecast from +0.9% to +0.6% due to the higher base effect.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China PPI

  A key macro indicator directly reflecting factory-gate industrial price rebound.

  Strengths

  April rose to year-on-year +2.8%, significantly above expectations, indicating strong upstream price momentum.

  Weaknesses

  The rebound was mainly driven by energy and chemicals, so the breadth of the move still needs to be verified.

  Comparison

  It accelerated clearly versus March’s year-on-year +0.5%, and is above Goldman Sachs and market expectations of +1.8%.

  Risks

  If oil prices fall or the high base effect shows through, PPI could slow in coming quarters.

• Oil and gas

  One of the main drivers of the PPI rebound.

  Strengths

  Oil and gas contributed about 1.0 percentage point to the increase in the total PPI YoY in April.

  Weaknesses

  Prices are highly exposed to global oil market and supply-demand shocks, making them volatile.

  Comparison

  Compared with food and core CPI, oil and gas showed a more pronounced marginal contribution to inflation upside.

  Risks

  A decline in oil prices would weaken reflation momentum.

• Chemicals

  An important component of upstream price rebound, influenced by energy price pass-through.

  Strengths

  Chemicals contributed about 0.7 percentage point to the increase in total PPI YoY in April.

  Weaknesses

  If end-user demand is weak, the chemical price rise may fail to sustain pass-through downstream.

  Comparison

  Together with oil and gas, it forms the main industry source of the PPI rebound.

  Risks

  Falling energy prices, inventory adjustments, or weakening demand could pressure chemical prices.

• Food CPI

  The main subcomponent offsetting overall CPI upside.

  Strengths

  Falling food prices eased overall household-level inflation pressure.

  Weaknesses

  A year-on-year negative food CPI indicates softness in some consumer goods inflation.

  Comparison

  It moved from year-on-year +0.3% in March to year-on-year -1.6% in April, opposite to non-food CPI.

  Risks

  If food prices continue weakening, they may mask inflation pressure from the energy-driven side.

Key data

• April CPIYoY +1.2%; seasonally adjusted annualized month-on-month +2.4%Above Goldman Sachs and Bloomberg consensus YoY expectation of +0.9%; March was YoY +1.0%.
• April food CPIYoY -1.6%March was YoY +0.3%; pork, fresh vegetables, and fresh fruits were all weak.
• April non-food CPIYoY +1.8%March was YoY +1.2%; higher fuel costs were the main driver.
• April core CPIYoY +1.2%March was YoY +1.1%, only slightly higher.
• April PPIYoY +2.8%; seasonally adjusted annualized month-on-month +24.5%Above Goldman Sachs and Bloomberg consensus YoY expectation of +1.8%; March was YoY +0.5%.
• Upstream industry contributionabout 81%Upstream industries explained most of the total PPI YoY rebound.
• Oil and gas contributionabout 1.0 percentage pointContributed to the 2.3 percentage-point increase in total PPI YoY from March to April.
• Chemicals contributionabout 0.7 percentage pointContributed to the 2.3 percentage-point increase in total PPI YoY from March to April.
• Full-year 2026 PPI forecastYoY +2.0%Previously forecast at YoY +1.2%.
• Full-year 2027 PPI forecastYoY +0.6%Previously forecast at YoY +0.9%, lowered mainly due to the high base effect.

Impact & implications

The report suggests that China’s short-term inflation pressure is more cost-driven and linked to an upstream price rebound, rather than broad demand overheating. From a macro perspective, a stronger-than-expected rise in PPI could improve upstream firms’ nominal revenues and industrial goods price performance, but if end-user demand does not strengthen in tandem, profit transmission may diverge. For policy and market monitoring, future attention should distinguish between energy price shocks, chemical price pass-through, and core inflation trends.

Risks

• Oil and energy price volatility could lead to further revisions to PPI forecasts.
• The PPI rebound is highly concentrated in upstream industries; if downstream demand is insufficient, price pass-through and profit improvement may be constrained.
• Continued declines in food prices could keep overall household CPI muted.
• The high base effect may cause 2027 PPI readings to roll over.
• Chart text in the report graphics is not clearly legible, so chart details must be interpreted from the body text and titles.

What to watch

• Subsequent movements in oil, natural gas, and related chemical prices.
• Whether PPI spreads from upstream industries to more industrial sectors.
• Whether core CPI continues a mild rise or remains subdued.
• Food prices, especially changes in pork, fresh vegetables, and fresh fruit prices.
• The continued contribution of travel-related service prices to non-food CPI.
• Whether Goldman Sachs continues to revise 2026 and 2027 PPI forecasts.