China's April PPI rose above expectations, and Deutsche Bank raised its 2026 inflation forecasts

Overview

This Deutsche Bank China macro inflation monitoring report focuses on the April 2026 PPI and CPI data. The report argues that the significant upside surprise in April PPI is not an isolated shock, but is consistent with historical reflation patterns; rising energy and industrial goods prices are pushing CPI higher, partially offsetting the drag from falling food prices. Based on broader inflation and stronger pass-through, the report raises its 2026 PPI and CPI forecasts and believes that a better inflation outlook will help the recovery in industrial profits.

Core views

The core views include: first, April PPI jumped from 0.5% year-on-year in March to 2.8%, with a 1.7% month-on-month increase, reflecting a clear intensification of upstream price shocks; second, rising oil prices have been passed through to chemicals, rubber, plastics, coal, metals, fibers, textiles, and other sectors, suggesting that PPI inflation is broadening; third, CPI rose from 1.0% to 1.2%, with energy prices, core inflation, and service consumption support offsetting weaker food prices; fourth, pass-through from PPI to CPI is emerging, with industrial consumer goods prices rising 3.5% year-on-year; fifth, Deutsche Bank raised its 2026 PPI forecast to 3.2% and its CPI forecast to 1.6%.

Analysis framework

The report uses a monthly inflation data tracking and component breakdown approach, comparing year-on-year and month-on-month changes in PPI, CPI, and their food, energy, core, services, and industrial consumer goods subcomponents, and combines this with historical PPI reflation experience to assess the subsequent inflation path.

Methodology notes

• Macro Data TrackingPPI and CPI Component Inflation Monitoring

  Assess inflation broadening and pass-through through changes in producer prices, consumer prices, and key component prices.

  The report links upstream and midstream price increases in PPI with energy, core, industrial consumer goods, and services components in CPI to evaluate whether price pressures are being transmitted from the production side to the consumer side.

• Historical AnalogyHistorical PPI Reflation Pattern

  Use historical PPI reflation phases as a reference for judging subsequent upside potential.

  The report points out that although the April jump in PPI exceeded expectations, it is consistent with historical patterns, and therefore it raised its full-year PPI forecast and expects it could reach 5% in the second half.

Asset mapping & comparison

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

• China macro assets

  Affected by PPI reflation and CPI recovery

  Strengths

  Improving inflation may support nominal growth and the recovery in industrial profits.

  Weaknesses

  Food prices remain weak, and the recovery in household-side inflation is uneven.

  Comparison

  The report compares the April jump in PPI with historical PPI reflation patterns.

  Risks

  If energy prices fall back or demand pass-through is insufficient, inflation may rise less than forecast.

• Industrial enterprise profits

  Benefit from improving PPI

  Strengths

  Rising upstream and midstream prices help improve the revenue and profit environment for industrial enterprises.

  Weaknesses

  Cost pass-through may be unevenly distributed across different parts of the industrial chain.

  Comparison

  Compared with the drag from food prices, momentum in industrial goods prices is stronger.

  Risks

  If downstream demand is insufficient, rising prices may be difficult to fully convert into profits.

• Fixed income and interest rate assets

  Affected by inflation expectations and macro interest rate risk

  Strengths

  Reflation provides clearer macro pricing signals.

  Weaknesses

  Rising inflation may push up discount rates, which is unfavorable for fixed-rate assets.

  Comparison

  The disclosures section emphasizes that macro volatility is an important source of risk for fixed income instruments.

  Risks

  Rising inflation, fiscal financing needs, and exchange rate volatility may increase pressure on interest rates and valuations.

Key data

• April PPI YoY2.8%Rose significantly from 0.5% in March.
• April PPI MoM1.7%Almost double the 0.9% month-on-month increase in March.
• April CPI YoY1.2%Further rebounded from 1.0% in March.
• Food inflation-0.8%同比Pork prices fell 15% year-on-year, while vegetable and fruit prices were broadly reduced.
• Fuel prices17.4%同比Contributed 0.45 percentage points to overall CPI, higher than 0.15 percentage points in March.
• Core CPI1.2%同比Up 0.1 percentage points from the previous reading and better than seasonality.
• Industrial consumer goods prices3.5%同比Driven by product prices such as gasoline, automobiles, and mobile phones.
• Services inflation0.9%同比Higher than 0.83% in 1Q 2026 and 0.7% in 4Q 2025.
• 2026 PPI forecast3.2%Raised by 1.4 percentage points, expected to reach 5% in the second half.
• 2026 CPI forecast1.6%Raised by 0.1 percentage points, expected to possibly reach 2.0% by year-end.

Impact & implications

Rising inflation and stronger pass-through from PPI to CPI imply that China's industrial goods price cycle may be entering a reflation phase. If inflation improvement continues, the revenue pricing environment and profit recovery of industrial enterprises may benefit; at the same time, rising energy prices and core inflation will also affect the macro pricing of fixed income, interest rate, exchange rate, and consumption-related assets.

Risks

• The jump in PPI may include short-term factors such as energy prices; if prices fall back subsequently, the full-year inflation path may be lower than forecast.
• Food prices remain below seasonality and have turned negative, which may continue to suppress CPI.
• Pass-through from PPI to CPI is still at an early stage; if end demand is insufficient, the strength of pass-through may be weaker than the report assumes.
• Fixed income and foreign exchange-related assets face risks from rising inflation, interest rate changes, exchange rate volatility, and liquidity.

What to watch

• Whether PPI month-on-month will continue to remain elevated in the coming months.
• Whether price increases in oil, chemicals, coal, metals, fibers, and textiles will continue to broaden.
• Whether industrial consumer goods prices can continue to validate PPI-to-CPI pass-through.
• Whether service consumption and services inflation will continue to stay above previous levels.
• Whether PPI in the second half of 2026 will approach the report's forecast of 5%, and whether CPI will approach 2.0% by year-end.