Goldman Sachs Raises China's 2026 PPI Forecast to 2.0%, Driven by Oil Prices

Overview

This report provides a detailed analysis of China’s April 2026 inflation data. The key conclusion is that China’s Producer Price Index (PPI) experienced a significant rebound, driven by rising international oil prices, with year-over-year growth accelerating from 0.5% in March to 2.8% in April. Although the Consumer Price Index (CPI) rose only modestly to 1.2%, the stronger-than-expected PPI performance prompted Goldman Sachs to revise upward its full-year 2026 PPI inflation forecast. The report notes that this reflationary episode is primarily driven by upstream energy and raw material sectors and expects PPI growth to peak in the near term before gradually moderating over the coming quarters.

Core views

On CPI: headline CPI rose 1.2% year-over-year in April, slightly above March’s 1.0% and exceeding both Goldman Sachs’ and Bloomberg consensus expectations of 0.9%. This modest increase masked underlying structural divergence: food prices declined 1.6% year-over-year (mainly due to falling pork, fresh vegetable, and fruit prices), while non-food prices rose 1.8%. Within non-food categories, fuel costs surged 17.4% year-over-year, making a substantial contribution to non-food CPI growth; additionally, transportation services and tourism-related service prices also increased. Core CPI (excluding food and energy) remained flat at 1.2% year-over-year. On PPI: headline PPI jumped 2.8% year-over-year in April, far exceeding March’s 0.5% and market expectations of 1.8%. On a seasonally adjusted annualized basis, the month-over-month increase reached 24.5%. This surge was primarily attributable to rising energy and related chemical prices. Data show that upstream sectors accounted for approximately 81% of the PPI rebound, with oil & gas extraction and processing contributing 1.0 percentage point and chemical raw materials and synthetic fiber manufacturing contributing 0.7 percentage points. PPI for producer goods rose from 1.0% to 3.8% year-over-year, while PPI for consumer goods remained negative (-1.0%), indicating that pricing pressures are concentrated upstream in the production chain. Forecast Revisions: Given the significantly stronger-than-expected April PPI data, Goldman Sachs raised its full-year 2026 headline PPI inflation forecast from 1.2% to 2.0%. Meanwhile, factoring in high base effects, it lowered its full-year 2027 PPI inflation forecast from 0.9% to 0.6%, though it noted that global AI-related capital expenditure could provide some support to downstream prices.

Analysis framework

The institution employed a standard macroeconomic data decomposition and attribution methodology. First, aggregate inflation indicators (CPI/PPI) were broken down into subcomponents such as food/non-food, energy/core, and upstream/downstream to identify specific sources of price movements. Second, the contribution (in percentage points) of each subcomponent to overall year-over-year changes was calculated to quantify the impact weight of key drivers (e.g., oil prices, pork prices). Finally, historical trends and base effects were incorporated to dynamically adjust the full-year inflation trajectory. This approach helps investors look beyond headline numbers to understand the structural characteristics and persistence of inflation.

Methodology notes

• Industry/sector analysis frameworkVolume-price decomposition

  Inflation attribution analysis

  Decomposing aggregate price indices into different categories (e.g., food, energy, core goods) and calculating each category’s contribution in percentage points to pinpoint whether inflation is primarily driven by supply-side factors (e.g., oil prices) or demand-side dynamics.

• Cycle and sentiment framework

  Base effect analysis

  When forecasting future inflation, accounting for the dampening impact of currently high growth rates on year-over-year comparisons in the following year (high base effect), thereby revising forward-looking forecasts downward—a common logic when handling cyclical data fluctuations.

Key data

• April CPI YoY1.2%Above prior reading of 1.0% and market expectation of 0.9%
• April PPI YoY2.8%Significantly above prior reading of 0.5% and market expectation of 1.8%
• April fuel cost YoY17.4%Up from 3.4% in March; primary driver of non-food CPI increase
• April pork price YoY-15.2%Continued decline, weighing on food CPI
• Upstream sector contribution to PPI reboundApprox. 81%Indicates pricing pressure is concentrated at the production stage
• Full-year 2026 PPI forecast2.0%Revised up from previous 1.2%
• Full-year 2027 PPI forecast0.6%Revised down from previous 0.9%, impacted by high base effect

Impact & implications

The report suggests that April’s inflation data indicate China is undergoing an oil-driven reflationary phase. For markets, the rapid PPI recovery may improve earnings expectations for upstream resource-intensive sectors (e.g., oil, chemicals, coal). However, given that consumer goods PPI remains negative, downstream consumer sectors still exhibit weak pricing power, and cost pass-through remains limited. Goldman Sachs’ forecast revisions reflect a reassessment of short-term resilience in industrial product prices, while also highlighting medium-term risks of deceleration due to base effects.

What to watch

• Whether PPI growth moderates as expected over the next few quarters
• The actual price-supporting impact of the global AI capex boom on related products
• Oil price trends and their sustained influence on domestic energy costs