China's March PPI turns positive for the first time since 2022, with an energy shock driving upstream re-inflation

Overview

This report focuses on China's March 2026 inflation data. Nomura noted that March CPI YoY slowed to 1.0%, mainly due to weaker food and core prices after the Lunar New Year; PPI moved from negative to positive at 0.5% YoY, marking the first positive reading since September 2022, mainly driven by a low base last year and rising global energy prices. The report judges that the improvement in PPI may continue over the next few months, but inflation pressure remains concentrated upstream and has not broadly spread to downstream consumer goods.

Core views

The core view is that China's economy is undergoing re-inflation driven by external energy shocks and upstream price increases, rather than broad inflation driven by a full demand recovery. PPI turning positive ends 41 consecutive months of industrial goods deflation, but downstream consumer-goods PPI remains negative, indicating that end demand is still weak. Beijing may welcome easing deflationary pressure, but supply-side-driven price gains may further compress corporate profit margins and weigh on household consumption.

Analysis framework

The report combines YoY and MoM readings, holiday-timing adjustments, component breakdowns, and high-frequency price tracking, comparing March data with the average of January-February and decomposing food, energy, core CPI, gold, pork, durables, upstream PPI, and downstream PPI components to assess the sources of inflation pressure and its transmission path.

Methodology notes

• Inflation decompositionCPI and PPI component breakdown

  Assess inflation sources through food, energy, core CPI, upstream PPI, and downstream PPI components.

  The report emphasizes that March CPI eased mainly because food and core prices weakened, while the return of PPI to positive territory was concentrated in upstream industries, indicating that this round of inflation pressure mainly comes from energy and raw material prices rather than a broad expansion in end demand.

• High-frequency trackingHigh-frequency agricultural and energy price data

  Use MARA food prices, refined oil price adjustments, and Brent crude changes to forecast April inflation.

  The report cites information such as MARA agricultural and food prices turning negative YoY in April to date, the NDRC raising gasoline retail prices, and a sharp YoY rise in Brent crude, and infers that April CPI will be dragged by food while PPI continues to rise.

• Pass-through estimationEstimated oil-price pass-through to PPI

  A sustained 10% rise in oil prices could lift PPI by about 1.0 percentage point.

  Nomura believes oil prices pass through to PPI with a lag, so with global oil prices elevated and a low base working together, PPI may remain on an upward path over the coming months.

Asset mapping & comparison

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

• China macro inflation

  Core research subject

  Strengths

  PPI turning positive shows that deflationary pressure in industrial goods has eased on a temporary basis.

  Weaknesses

  CPI remains mild, and core inflation ex gold is about 0.7%, indicating domestic demand is still not strong.

  Comparison

  PPI rose from -0.9% in February to 0.5% in March, while CPI fell from 1.3% to 1.0%.

  Risks

  If re-inflation is mainly driven by supply shocks, it may squeeze profits and suppress consumption.

• Oil and gas and Brent crude

  Main driver of the PPI and CPI energy components

  Strengths

  Rising oil prices significantly lift energy-related industrial product prices and may continue to pass through to PPI with a lag.

  Weaknesses

  Energy price increases are a cost shock and do not necessarily indicate demand improvement.

  Comparison

  Brent crude prices were up 43.2% YoY in March and up 97.9% YoY so far in April.

  Risks

  If Middle East tensions and Hormuz-related shocks ease, the support from energy prices to PPI may weaken.

• Gold-related products

  An important noise item in core CPI

  Strengths

  Sharp YoY gains in gold-related product prices make a clear positive contribution to core CPI.

  Weaknesses

  Excluding gold, core CPI is only about 0.7%, showing that underlying inflation momentum is weak.

  Comparison

  In March, gold-related product prices rose 65.8% YoY, below 76.6% in February and 77.4% in January.

  Risks

  A pullback in gold prices would weaken the apparent support for core CPI.

• Pork and food prices

  CPI drag

  Strengths

  Falling food prices help restrain the rise in household living costs.

  Weaknesses

  Abundant pork supply and weak demand continue to drag on CPI.

  Comparison

  March pork inflation was -11.5%, further down from -11.2% in January-February.

  Risks

  Persistently falling pork prices may reflect weak consumer demand.

• Upstream industrial goods

  Area where PPI improvement is concentrated

  Strengths

  Prices in mining, raw materials, manufacturing, and other upstream sectors improved significantly.

  Weaknesses

  Price increases have not clearly spread downstream, and transmission is uneven.

  Comparison

  Upstream PPI improved from -0.7% in February to 1.0% in March.

  Risks

  If higher upstream costs cannot be passed on downstream, margins at midstream and downstream firms will be compressed.

• Downstream consumer goods

  Observation target for inflation pass-through

  Strengths

  Downstream PPI improved slightly in March versus February.

  Weaknesses

  Downstream consumer-goods PPI remains -1.3%, indicating weak end demand.

  Comparison

  Downstream PPI was -1.3% in March versus -1.6% in February.

  Risks

  If demand recovery remains insufficient, re-inflation will struggle to generate broad price pass-through.

Key data

• March CPI YoY1.0%Below February's 1.3% and slightly below the market and Nomura forecast of 1.1%.
• March PPI YoY0.5%Above February's -0.9% and slightly above the market and Nomura forecast of 0.4%, marking the first positive reading since September 2022.
• April CPI forecast0.9%Falling food prices act as a drag, while higher energy prices provide partial offset.
• April PPI forecast1.6%Affected by elevated global oil prices, a low base, and lagged pass-through.
• Gasoline contribution to March CPI0.31 percentage pointsGasoline prices rose 11.1% MoM in March.
• Gold-related product pricesup 65.8% YoYGold carries a weight of about 0.6% in the core CPI basket and is estimated to have contributed about 0.40 percentage points to core CPI.
• Core CPI ex goldabout 0.7%March core CPI was 1.1%, but excluding gold gives a better picture of underlying inflation weakness.
• Pork inflation-11.5%The March YoY decline in pork prices widened, contributing about -0.22 percentage points to overall CPI.
• PPI in oil and gas extraction5.2%The March YoY reading rebounded sharply from -12.9% in February.
• Downstream consumer goods PPI-1.3%Still subdued in March, with only a slight improvement from -1.6% in February.

Impact & implications

The macro implication is that China's PPI turning positive helps ease the three-year deflationary pressure and may improve nominal income in some upstream sectors, but the source is mainly oil and gas, metals, and external price shocks. If cost increases cannot be smoothly passed through to end demand, corporate profit margins may be squeezed and household consumption demand may remain under pressure. For assets, energy, gold, nonferrous metals, and some upstream industrial chains are more sensitive to inflation upside, while downstream consumption and durable goods prices still indicate insufficient demand.

Risks

• Persistently elevated global oil and gas prices may further raise production costs.
• Supply-side-driven re-inflation may compress corporate profit margins.
• Falling food and pork prices reflect ample supply and weak domestic demand, and may continue to drag on CPI.
• Inflation pressure is concentrated upstream; if it cannot be passed downstream, the quality of economic improvement will be limited.
• Single-item swings such as gold can have a large impact on core CPI and may obscure weak underlying inflation.

What to watch

• Whether April CPI falls to around 0.9% as expected.
• Whether April PPI continues to rise to around 1.6% and confirms the upward trend.
• Brent crude prices and the pace of domestic refined oil price adjustments.
• MARA food prices and changes in pork supply and demand.
• Whether upstream prices can spread to downstream consumer goods.
• Prices in sectors affected by anti-involution efforts or global pricing, such as nonferrous metals, memory chips, photovoltaic equipment, and lithium batteries.