China’s April CPI and PPI both exceeded expectations, with inflation pressure pushed by energy and upstream costs

Overview

The report analyzes the reasons for China’s better-than-expected rise in April 2026 CPI and PPI and provides May inflation expectations. It argues that the inflation recovery is not driven by broad demand improvement, but mainly by global energy shocks, rising oil prices, and the transmission of chip- and some upstream material price increases into China; food inflation remains weak, especially pork, which continues to weigh on CPI.

Core views

Core views include: first, April CPI rose year-on-year from 1.0% in March to 1.2%, stronger than market and Nomura expectations, mainly driven by energy prices, core prices, and non-food items; second, PPI jumped year-on-year from 0.5% in March to 2.8%, with contribution concentrated in upstream industries, with external oil and related raw material prices as key causes; third, the end of deflation offers some policy relief, but as China is a net importer of energy and chips, higher external prices may worsen trade conditions and squeeze firms and households; fourth, Nomura sees upside risk to its 2026 headline forecasts of CPI 0.6% and PPI 1.0%.

Analysis framework

The report uses a macro inflation decomposition approach, splitting CPI into food, non-food, core CPI, services, and energy-related subcomponents, and splitting PPI into upstream, downstream, and sector-level subcomponents including oil and gas extraction, fuel processing, non-ferrous metals, chemicals, optical fiber manufacturing, and storage devices, then combining high-frequency food prices, oil year-on-year movements, NBS data, Wind data, and historical charts to assess price pass-through pathways.

Methodology notes

• Macro inflation decompositionCPI/PPI component contribution analysis

  Identify the source of inflation by decomposing CPI into food, non-food, energy, core CPI and PPI into upstream and downstream components.

  The report emphasizes that April’s inflation surprise was not broad demand-driven, but concentrated in contributions from energy, non-ferrous metals, AI-related materials, and upstream-industry prices.

• Commodity price pass-throughOil price lagged pass-through framework

  Persistent oil price increases raise PPI through mining, refining, chemicals, and other sectors.

  Nomura estimates that if oil prices rise by another 10%, PPI could increase by about 1.0 percentage point, and transmission usually occurs with a lag.

• Core inflation adjustmentCore CPI observation excluding gold

  Rapidly rising gold-related product prices lift core CPI and require separate assessment.

  The report says gold has a weight of about 0.6% in the core CPI basket, and gold-related product prices rose 46.9% year-on-year in April, contributing about 0.28 percentage points to core CPI.

Asset mapping & comparison

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

• China macro assets

  Inflation upside surprises have changed market perceptions of deflation and the policy backdrop.

  Strengths

  The strengthening of CPI and PPI on a year-on-year basis suggests nominal price conditions are improving and deflation pressure has eased.

  Weaknesses

  The upward push is mainly from external energy and upstream costs, while domestic demand and food prices remain relatively weak.

  Comparison

  Compared with the period of mostly negative PPI readings, April is a rare instance of back-to-back positive prints since September 2022.

  Risks

  Input-led inflation may worsen trade conditions and squeeze corporate profits and household consumption.

• Energy and oil-and-gas related assets

  Rising oil prices directly lift energy CPI and oil-related PPI subcomponents.

  Strengths

  High year-on-year oil prices support prices in oil and gas extraction, fuel processing, and related chemicals.

  Weaknesses

  At the China aggregate level, the net energy-importing position limits macro benefits.

  Comparison

  April oil and gas extraction PPI yoy was 28.6%, clearly above March's 5.2%.

  Risks

  If oil price shocks persist, downstream cost pressure and policy response uncertainty increase.

• Gold-related products

  Rising gold prices lift core CPI through other commodity and service-related components.

  Strengths

  Gold-related products were still up 46.9% year-on-year in April, making a clear contribution to core CPI.

  Weaknesses

  The rise has eased from the high levels of January to March, so marginal support to core CPI could weaken.

  Comparison

  Excluding gold, April core CPI was about 0.9%, below the headline core CPI of 1.2%.

  Risks

  If gold prices fall, the apparent resilience of core CPI may weaken.

• Pork and food prices

  Pork prices are an important drag on food CPI and overall CPI.

  Strengths

  A low base and policy support could turn pork inflation positive in the second half.

  Weaknesses

  Ample supply, weaker catering activity, and weak real-estate-linked demand continue to cap prices.

  Comparison

  April pork inflation was -15.2%, weaker than March's -11.5%.

  Risks

  If demand recovers more slowly than expected, the drag from food items on CPI may continue.

• Downstream manufacturing and consumption sectors

  The upstream PPI rise has not yet clearly flowed through to downstream prices.

  Strengths

  Downstream prices remain relatively low, limiting short-term headline consumer inflation pressure.

  Weaknesses

  Rising cost side and limited downstream transmission may compress margins.

  Comparison

  The report says the PPI rise is concentrated upstream, while downstream prices remain weak, indicating inflation pressure has not spread broadly.

  Risks

  If upstream costs keep rising while demand is weak, downstream firms may face further earnings pressure.

Key data

• April CPI yoy1.2%Above March 1.0%, market expectation 0.9%, and Nomura expectation 0.8%.
• April PPI yoy2.8%Above March 0.5%, market expectation 1.8%, and Nomura expectation 1.3%.
• Nomura forecast May CPI yoy1.4%Food and energy prices are expected to keep inflation moving higher.
• Nomura forecast May PPI yoy4.0%High oil prices and low base effects are expected to keep PPI rising.
• Energy, non-ferrous and AI-related materials contribution to PPI3.54 percentage pointsThe report estimates that even without this contribution, PPI would still remain in negative territory.
• April gasoline price yoy19.3%Contributed about 0.56 percentage points to April CPI.
• April pork inflation yoy-15.2%Contributed about -0.29 percentage points to CPI and was the largest drag in food items.
• April gold-related product price yoy46.9%Contributed about 0.28 percentage points to core CPI.
• April oil and gas extraction sector PPI yoy28.6%Up sharply from March's 5.2%.
• April oil, coal and other fuels processing sector PPI yoy14.2%Turned clearly positive from March's -4.5%.

Impact & implications

For assets and macro views, the report suggests the nature of China's inflation rise is cost-push rather than broad demand recovery. Rising energy and upstream commodity prices may benefit upstream repricing, but they will also squeeze downstream manufacturing, consumption, and household purchasing power. While policy may see a reprieve from the end of disinflation, if input-led inflation persists, macro pressure could shift from weak pricing to deteriorating trade conditions and margin compression.

Risks

• Global oil and energy prices staying elevated, pushing up input inflation.
• PPI rising in upstream sectors while downstream demand remains weak, which may compress margins.
• If pork and food prices stay weak, the CPI recovery may remain fragile.
• Rising chip, AI-related material, and non-ferrous metal prices could further worsen trade conditions.
• Upside risk to inflation forecasts could affect policy timing and market views on growth quality.

What to watch

• Whether May CPI and PPI prints come close to Nomura's 1.4% and 4.0% forecasts.
• Brent oil year-on-year changes and their lagged pass-through to PPI.
• The effect of NDRC retail fuel price adjustments on the CPI energy component.
• Pork supply, slaughter volumes, catering demand, and policy price-stabilization measures.
• Whether the contribution of gold-related products to core CPI remains persistent.
• Whether upstream PPI is diffusing into downstream manufacturing and consumer goods prices.