While the data is not really the focus there is some big news expected from Chinese wholesale inflation data for March. China’s prolonged battle with deflation may be nearing a turning point, with early signs suggesting a return to positive price growth across key indicators. Rising global energy costs and base effects are expected to lift factory-gate prices and broader inflation measures, although the recovery remains uneven.
Recent survey data indicate China’s producer price index (PPI) likely returned to growth in March, rising around 0.5% year-on-year and ending a 41-month streak of declines. The rebound has been largely driven by higher global oil prices, supported by geopolitical tensions in the Middle East, firmer demand, and speculative activity. These factors have pushed up input costs for manufacturers, feeding into producer prices.
In contrast, consumer inflation remains subdued. The consumer price index (CPI) is expected to ease slightly to around 1.2% year-on-year, reflecting softer demand following the Lunar New Year period. Food prices, particularly pork, have declined amid ample supply, while services inflation has also moderated.
This divergence underscores a key challenge for China’s economy: rising costs driven by external factors alongside weak domestic demand. While a return to positive inflation may signal the end of the deflationary cycle, the composition of that inflation is less encouraging. Much of the price pressure stems from imported inflation, especially energy, which can squeeze corporate margins and weigh on household purchasing power.
Even so, moving out of deflation is an important step toward stabilisation. Persistent deflation has reflected structural imbalances between supply and demand, and policymakers generally have more tools to manage rising prices than falling ones.
Looking ahead, broader measures such as the GDP deflator are also expected to turn positive in early 2026, potentially marking the first sustained period of price expansion in several years. Authorities are likely to rely on a mix of policy tools, including administrative controls and fiscal support, while continuing structural reforms aimed at improving supply efficiency.
Overall, China may be exiting deflation, but the recovery remains fragile, driven more by external cost pressures than a meaningful rebound in domestic demand.
This article was written by Eamonn Sheridan at investinglive.com.