CITIC Securities: The timing of PPI turning positive year-on-year may be brought forward further

CITIC Securities Research Report states that in February, China’s PPI and CPI both exceeded market expectations, with both figures respectively 0.3 and 0.4 percentage points higher than the consensus forecast by Wind. Regarding PPI, the core drivers of its outperformance are input factors from strong rises in non-ferrous metals and crude oil prices, with chemical and electronic price increases also performing well. It is estimated that in February, contributions from non-ferrous smelting, chemicals, computer communications, and oil extraction to the month-on-month PPI increase were 0.32, 0.08, 0.08, and 0.04 percentage points, respectively. For CPI, aside from the “Spring Festival offset” factor, the main drivers include rising prices in services (air tickets, car rentals, travel agencies, hotel accommodations), as well as increases in crude oil and gold prices. Under the current geopolitical fluctuations between the U.S. and Iran, crude oil prices may continue to rise. It is estimated that a 1% increase in Brent crude oil prices could impact China’s PPI by approximately 0.04–0.05 percentage points and CPI by 0.01–0.02 percentage points, potentially further advancing the timing of year-on-year PPI turning positive. Regarding monetary policy, it is expected that the People’s Bank of China will not tighten monetary policy due to supply shocks in oil prices; instead, the focus will be on observing demand-side changes.

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Price Data | PPI Turning Positive Year-on-Year May Further Advance (February 2026)

In February, China’s PPI and CPI both surpassed market expectations, with figures 0.3 and 0.4 percentage points higher than the Wind consensus forecast. The PPI’s outperformance was mainly driven by input factors from strong rises in non-ferrous metals and crude oil prices, with chemical and electronic prices also performing well. We estimate that in February, contributions from non-ferrous smelting and processing, chemical raw materials and chemical products manufacturing, computer communication and electronic equipment manufacturing, oil and gas extraction, and non-ferrous mineral mining contributed 0.32, 0.08, 0.08, 0.04, and 0.02 percentage points to the PPI month-on-month increase, respectively (overall PPI for February was +0.4%). The performance of black material industry factory prices was relatively flat, with coal mining and washing, ferrous metal mining, non-metal mineral mining, and non-metal mineral products recording month-on-month declines of -0.5%, -0.8%, -0.6%, and -0.2%.

In February, the year-on-year CPI also significantly exceeded market expectations, aside from the “Spring Festival offset” factor, driven by rising service prices (air tickets, car rentals, travel agencies, hotel stays), as well as increases in crude oil and gold prices. The CPI year-on-year rose from 0.2% in January to 1.3% in February, surpassing the Wind forecast by 0.4 percentage points. The sharp rebound in February’s CPI includes the impact of the higher “Spring Festival offset” effect (2026 Spring Festival falls in February, 2025 in January). Additional notable points include:

1. Service CPI exceeded expectations. In February, service CPI increased by +1.1% month-on-month, higher than the historical average for February (years with Spring Festival in February) by 0.4 percentage points, with tourism performing the best. According to the National Bureau of Statistics, prices for air tickets, transportation rentals, travel agency fees, and hotel stays rose by 31.1%, 24.7%, 15.8%, and 7.3%, respectively, collectively contributing about 0.32 percentage points to the CPI month-on-month increase, accounting for over 30% of the total CPI rise.

2. Crude oil prices rose beyond expectations. In February, energy prices for transportation increased by +2.8% month-on-month, and with continued oil price increases, this segment is expected to sustain strong growth momentum.

3. Gold price contribution. In February, the CPI for other goods and services increased by +2.3% month-on-month, with a year-on-year growth rate of +15.4%, also providing strong growth momentum for the overall CPI.

Under the current geopolitical fluctuations between the U.S. and Iran, crude oil prices may continue to rise, likely driving China’s PPI year-on-year to turn positive earlier than March. Since the conflict has caused a rapid increase in oil prices—Brent crude spot prices have risen from $71.4 per barrel in February to $85.4 in March, with potential to hit $100 under current developments—similar extreme impacts on domestic prices were observed during the Russia-Ukraine conflict in 2022. From December 2021 to March 2022, Brent crude spot prices increased monthly from $74.1 to $87.4, $98.3, and $119.0, with monthly increases of 17.9%, 12.6%, and 21.0%, respectively. Driven by this, China’s PPI increased by +0.5%, +1.1%, and +0.6% in February-April 2022.

Based on historical data estimates, a 1% increase in oil prices (using Brent crude as a benchmark) could impact China’s PPI by approximately 0.04–0.05 percentage points and CPI by 0.01–0.02 percentage points. Under this scenario, the month-on-month PPI increase in March could further expand, potentially leading to an earlier positive year-on-year PPI.

Regarding monetary policy, it is expected that the People’s Bank of China will not tighten monetary policy due to supply shocks in oil prices; instead, the focus will be on demand-side changes. For example, in 2021, despite a sharp rise in PPI driven by coal shortages and other supply-side factors, China’s monetary policy did not tighten but rather eased gradually due to weakening economic growth momentum.

Bond Market Strategy:

For the bond market, the impact of rising inflation may differ in the short and long term. In the short term, the phase of PPI exceeding expectations driven by rising oil prices could temporarily impact long-term interest rates, possibly pushing the 10-year government bond yield above 1.8%. In the longer term, under conditions of insufficient domestic demand, the pass-through efficiency of upstream price increases to downstream remains to be verified. If the year-on-year CPI growth rate remains limited, maintaining a low-cost financing environment through continued monetary easing could keep long-term risks manageable. Therefore, while short-term risks exist, the long-term outlook may be characterized by range-bound stability.

Risk Factors:

• Unexpected escalation of China-U.S. trade tensions and worsening external environment;
• Domestic and foreign demand recovery falling short of expectations;
• Federal Reserve monetary policy exceeding expectations;
• Geopolitical risks exceeding anticipated changes.

(Source: People’s Financial News)