China’s wholesale inflation accelerated to its fastest pace in nearly four years in May as rising energy and raw material costs linked to the Iran war pushed factory input prices higher. Growing demand tied to artificial intelligence infrastructure and computing equipment also contributed to the increase.
The producer price index rose 3.9% from a year earlier in May, according to data released by the National Bureau of Statistics. Consumer inflation increased 1.2% year on year, slightly below economists’ expectations, while core consumer inflation edged lower compared with April.
Energy and commodity costs drive factory inflation
The rise in wholesale prices followed disruptions to energy and raw material flows through the Strait of Hormuz during the Iran conflict. Purchasing prices for fuel and power increased 10% year on year in May, widening from 4.4% in April, while prices for non-ferrous metal materials and wires surged 22%.
Dong Lijuan, chief statistician at the National Bureau of Statistics, said stronger electrification trends, wider AI adoption, and growing computing demand lifted prices across non-ferrous metals, electrical machinery, and computer hardware sectors. Non-ferrous metal mining prices rose 36.5% from a year earlier, while smelting prices climbed 24%.
Consumer inflation remains subdued
Despite higher producer costs, consumer inflation remained relatively moderate. Consumer prices rose 1.2% in May from a year earlier and declined 0.1% compared with April. Gasoline prices increased 23.5% year on year, while food prices fell 1.7%.
The inflationary pressure [from higher energy costs] in the consumer sector is not strong, as domestic demand remains weak.
Zhiwei Zhang, Pinpoint Asset Management
Core consumer inflation, which excludes food and energy prices, increased 1.1% from a year earlier in May, slightly below the 1.2% increase recorded in April.
Pressure on companies and consumer spending
Economists warned that rising input costs could continue to pressure company profit margins as weak domestic demand limits businesses’ ability to pass higher costs on to consumers. Analysts also noted that household spending remains restrained despite some signs of recovery in demand for luxury goods.
What we're seeing is Chinese factories being squeezed from both sides.
Josh Gilbert, eToro
China’s export growth remained resilient in May, rising 19.4% from a year earlier in U.S. dollar terms, supported by demand for renewable energy and AI-related products. At the same time, China reduced crude oil imports by nearly 20% since the outbreak of the Iran war, according to official customs data compiled by Wind Information.
