China’s factory-gate prices post fastest rise since 2022 as energy costs surge

China’s factory-gate prices recorded their fastest increase in nearly four years last month, official data released on Wednesday showed, highlighting the impact of rising energy prices following the conflict in Iran on the world’s second-largest economy.

According to figures published by China’s National Bureau of Statistics, the producer price index (PPI) rose 3.9% in May from a year earlier. The increase was the strongest since July 2022 and marked the third consecutive month of expansion.

The index returned to positive territory in March after years of decline. The turnaround came shortly after the outbreak of the US-Israel war in Iran, which sharply reduced oil and gas shipments through the Strait of Hormuz.

Lynn Song, ING’s chief economist for Greater China, noted that prices in the oil and gas extraction sectors rose by 36%.

“The Iran war has clearly accelerated the return to positive PPI inflation that had previously been expected to be more gradual,” Song said.

The United States and Israel launched new attacks on Iran this week, further complicating President Donald Trump’s efforts to extend the ceasefire reached in April and restore energy flows through the strait.

Abhijit Surya, senior APAC economist at Capital Economics, said the May data showed that “the ripple effects of the Middle East supply shock are still being felt,” although he added that consumer price inflation was “showing signs of easing.”

China’s consumer price inflation rose 1.2% year-on-year in May, unchanged from the previous month.

On a monthly basis, however, consumer prices fell 0.1%, underscoring persistent demand pressures in an economy where policymakers continue to grapple with a prolonged property-market slowdown and intense domestic competition.

Beijing remains heavily reliant on trade to support economic growth as it confronts weak consumer and household confidence alongside stagnation in the real estate sector.

Fresh data released on Tuesday showed exports rose 19.4% in May. Shipments to the United States surged compared with the same period last year, shortly after the launch of President Trump’s tariff campaign, which has so far failed to curb China’s export machine.

Song also pointed to a 9.2% increase in raw material prices, saying the figure appeared poised to move into double-digit territory.

“This is likely to feed through to other prices in the coming months because many manufacturers operating with thin margins will have little choice but to pass these costs on to consumers,” he said.

On a monthly basis, producer prices rose 0.5% in May.

China has set an official consumer inflation target of 2% for 2026, while its GDP growth target stands at between 4.5% and 5%.