China producer prices turns positive as inflation gets boost from Iran oil

China’s factory-gate prices rose for the first time in more than three years while consumer inflation moderated in March, amid a surge in oil prices as the Iran war upended global energy markets.

The producer price index grew 0.5% from a year earlier, the first growth since September 2022, ending the longest deflationary streak in decades. For the first quarter, the PPI fell 0.6% year on year.

Consumer prices climbed 1% in March from a year earlier, missing economists’ forecast of 1.2% growth in a Reuters poll and slowing from a 1.3% rise in February, according to data released by the National Bureau of Statistics on Friday.

Core CPI, which excludes volatile items like food and energy, grew 1.1% in March from a year earlier.

The war between the U.S. and Iran, now in its sixth week, has pushed oil prices sharply after Tehran effectively closed the Strait of Hormuz to most commercial tankers and major Middle East producers curbed oil production.

The international benchmark Brent June contract traded at $96.7 a barrel on Friday, after a 33% rally since the war began on Feb 28. U.S. WTI crude futures for May delivery were at $98.5 per barrel, up 47% compared to pre-war levels.

China, the world’s largest oil importer, faces potential inflationary spillovers, though its massive strategic stockpiles and diversified energy sources have provided some cushion for the economy.

“China fares better than its peers amid a sizable yet not extreme oil shock, given its energy fungibility and policy flexibility with low starting inflation,” said Robin Xing, chief China economist at Morgan Stanley. He estimates the country’s PPI to rise 1.2% in 2026, while CPI will increase 0.8%.

The Wall Street bank has cut its forecast for China’s GDP growth this year by 10 basis points to 4.7%, assuming oil averages $110 a barrel in the second quarter before receding.

Should the Mideast conflict continue to deteriorate, pushing oil prices above $150 per barrel through the second quarter, China’s real GDP may slow to 4.2% this year, the bank said. “Even if the Strait reopens, slow supply normalization and inventory rebuilding could keep oil prices elevated,” Xing said.

In a sign of mounting pressure, China’s top economic planning agency on Tuesday raised retail prices for gasoline and diesel by 420 yuan ($61.18) and 400 yuan per metric ton, respectively. Last month, policymakers raised prices by 1,160 yuan and 1,115 yuan per ton.

In March, gasoline prices jumped 11.1% from the prior month, even as Beijing sought to cap the fuel price hikes to cushion the blow from energy-driven inflation for consumers. On a year-on-year basis, gasoline bills were up 3.8%.