China March PPI turns positive YoY, CPI falls back to 1.0%

Overview

This report analyzes China's March 2026 inflation data. March YoY CPI fell from +1.3% in February to +1.0%, mainly due to declines in food prices and tourism-related service prices; March YoY PPI rose from -0.9% in February to +0.5%, the first positive reading since end-2022, mainly driven by higher energy, oil & gas, and related chemical prices.

Core views

The key views are: first, the later Lunar New Year holiday meant that the post-holiday declines in food and tourism service prices were more visible in March, weighing on CPI; second, higher energy prices and disruptions related to the Strait of Hormuz pushed up fuel costs; third, the PPI improvement came more from upstream industries, while NBS also noted improved supply-demand conditions and more orderly competition, which may support price recovery in mid- and downstream sectors; fourth, although Q1 CPI/PPI came in below Goldman Sachs' forecasts, there is a lag in oil-price pass-through to inflation, so Goldman Sachs raised its Q2 QoQ inflation forecasts while keeping its full-year forecasts unchanged.

Analysis framework

The report uses a monthly inflation breakdown approach, separately examining CPI food, non-food, core CPI, service, and energy-related items, as well as PPI means of production, means of consumption, and upstream industry contributions, and compares actual data with Goldman Sachs forecasts and Bloomberg consensus.

Methodology notes

• macro inflation analysiscombining YoY with seasonally adjusted annualized MoM

  Observe both YoY and seasonally adjusted annualized MoM changes

  YoY metrics are used to assess inflation trends and base effects, while annualized MoM metrics are used to capture near-term price momentum. The report notes that the relevant MoM data are seasonally adjusted by Goldman Sachs.

• price decompositioncpi/ppi component contribution analysis

  Decompose inflation changes by food, non-food, core, services, energy, and upstream industries

  Component decomposition is used to identify the main sources of inflation changes. The report attributes the CPI slowdown to food and tourism service prices, while the PPI rebound is mainly driven by upstream energy and related chemical prices.

Asset mapping & comparison

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

• China macroeconomics

  directly related

  Strengths

  PPI turning positive YoY, along with improved supply-demand conditions and more orderly competition, may improve the industrial price environment.

  Weaknesses

  The CPI pullback shows weak price momentum on the household side, and service prices were clearly affected by the timing shift of the Lunar New Year holiday.

  Comparison

  March PPI improved from -0.9% in February to +0.5%, a larger improvement than CPI.

  Risks

  Energy price volatility, holiday timing shifts, and external geopolitical disruptions may affect subsequent inflation readings.

• Energy and related chemicals

  primary driver

  Strengths

  Rising oil & gas and related chemical prices drove the PPI rebound and pushed up fuel costs.

  Weaknesses

  The price increase may be driven more by short-term disruptions, and sustainability still needs to be observed.

  Comparison

  Upstream industries contributed about two-thirds of the overall rebound in YoY PPI.

  Risks

  Lagged oil-price pass-through may push Q2 inflation readings higher.

Key data

• March YoY CPI+1.0%February was +1.3%; Goldman Sachs forecast +1.0%, Bloomberg consensus +1.1%.
• March YoY PPI+0.5%February was -0.9%; Goldman Sachs forecast +0.5%, Bloomberg consensus +0.4%.
• March YoY food CPI+0.3%February was +1.7%, mainly due to a broad pullback in food prices.
• March YoY non-food CPI+1.2%February was +1.3%; weaker service prices were partly offset by higher non-food goods prices.
• March YoY core CPI+1.1%February was +1.8%; excluding food and energy, it fell sharply.
• March seasonally adjusted annualized MoM PPI+10.4%February was +4.5%, indicating materially stronger monthly PPI momentum.
• Full-year 2026 CPI/PPI forecastboth at +1.0% YoYGoldman Sachs kept its full-year headline CPI and PPI inflation forecasts unchanged.

Impact & implications

The return of PPI to positive territory suggests that price pressures in industrial goods have somewhat recovered, especially as energy and upstream industries provide more support to industrial inflation; however, the CPI slowdown indicates that price pressure on the household consumption side remains limited. From a macro perspective, near-term inflation momentum may strengthen as oil prices pass through, but the full-year inflation forecast was not raised, implying Goldman Sachs still sees the overall inflation environment as broadly subdued.

Risks

• Oil-price pass-through to CPI/PPI is lagged, which may make near-term inflation readings higher than the current trend suggests.
• The timing shift of the Lunar New Year disrupted food and tourism-related service prices, which may reduce the comparability of monthly YoY data.
• Strait of Hormuz-related disruptions have pushed up fuel costs, and geopolitical factors may continue to affect energy prices.
• If supply-demand improvement or changes in competition order are not sustainable, the persistence of the PPI rebound may be limited.

What to watch

• Whether subsequent months' YoY PPI can remain positive.
• The strength of oil and fuel cost pass-through to Q2 CPI/PPI QoQ readings.
• Whether the decline in food prices, pork prices, fresh vegetable prices, and fresh fruit prices continues.
• The recovery in service inflation after the Lunar New Year timing effect fades.
• Whether the NBS-mentioned improvements in supply-demand conditions and more orderly competition continue to support mid- and downstream prices.