China’s Producer Prices Hit Three-Year High as Iran War Shocks Energy Markets

CNBC reported Monday that China’s producer prices surged at their fastest pace in over three years during April, as the ongoing Iran conflict tightened global energy supply and pushed commodity costs sharply higher.

Factory-Gate Prices Surge Past Forecasts

China’s producer price index rose 2.8% year-on-year in April. That reading beat economist forecasts of 1.6% by a wide margin. It also marked a dramatic acceleration from just 0.5% growth recorded in March. Consumer prices climbed 1.2% annually, topping the 0.9% consensus estimate. Core CPI, excluding food and energy, edged up to 1.2% from 1.1% the prior month.

Hormuz Blockade Ripples Through Industrial Supply Chains

The Iran war has effectively throttled shipping traffic through the Strait of Hormuz. That disruption has driven sharp price increases across multiple industrial categories. Non-ferrous metals mining prices jumped nearly 39% from a year earlier. Oil and gas extraction costs rose almost 29%. Retail gasoline prices surged more than 19% compared with April 2025. Coal processing and oil refining costs also climbed as industries sought alternative energy sources.

A Long Deflationary Streak Now Ending

For context, China’s factory-gate prices only returned to positive territory in March. That ended the longest deflationary stretch in decades, spanning roughly three years of consecutive annual declines. Dong Lijuan, chief statistician at China’s National Bureau of Statistics, noted that rising demand for AI computing power also contributed, lifting prices for fiber manufacturing and external storage equipment. Zhaopeng Xing, chief China strategist at ANZ Research, said consumer inflation is likely to stay mild, but the PPI outlook depends heavily on near-term oil prices.

Domestic Demand Still a Concern

Holiday spending offered a temporary lift. Consumer sales during the extended Labour Day holiday rose 14.3% annually, outpacing February’s Lunar New Year growth rate of 13.7%. Still, underlying domestic demand remains fragile. Retail sales slowed to just 1.7% in March, missing expectations. Real estate investment fell 11.2% year-on-year through March, steepening from a 9.9% decline in the same period last year. Analysts at Nomura cautioned that supply-side reflation risks squeezing corporate profit margins and suppressing household spending further. China’s crude imports also fell 20% in volume terms in April versus a year earlier, suggesting the energy shock is already hitting import demand despite strategic stockpile buffers.

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