February CPI and PPI both exceeded expectations

On March 9, the National Bureau of Statistics released February’s inflation data. Both CPI (Consumer Price Index) and PPI (Producer Price Index for industrial producer ex-factory prices) came in above market expectations.

Looking at the details, year-on-year PPI (-0.9%, expected -1.2%) has improved for three consecutive months, while the month-on-month growth rate rose 0.4%, unchanged from the previous month. The year-on-year decline in PPIRM (Industrial Producer Purchase Price Index) has narrowed for seven straight months, and the month-on-month growth rate rose 0.7%, with the growth pace accelerating for three consecutive months. The month-on-month CPI growth rate expanded from 0.2% last month to 1.0%, the highest in nearly two years; the year-on-year growth rate expanded from 0.2% last month to 1.3% (expected 0.8%), the highest in about three years.

From the breakdown, prices for computing power and artificial intelligence-related upstream and downstream products rose significantly, and the prices of industries linked to “involution-style” competition governance—such as solar photovoltaic and lithium battery industries—rebounded.

What lies behind the data exceeding expectations? How is it related to the overall economy’s repair timeline? What favorable conditions still need to accumulate for PPI to maintain its recovery momentum and ultimately turn positive? Which industries have investment opportunities? A reporter from the Daily Economic News conducted interviews on this.

Demand picks up; policies start to take effect

In a text interview with a Daily Economic News reporter, Feng Lin, Executive Director of the Research and Development Department at Dongfang Jincheng, noted that at the start of the year, the inflation trend is still continuing the recovery momentum that began in the second half of 2025. Behind this are mainly greater efforts to boost consumption and to crack down on involution, as well as international gold prices accelerating their push higher.

In a text interview with the reporter, Guotai Fund Management Co., Ltd. said that the sustained recovery in PPI and PPIRM is mainly driven by three factors: first, international bulk commodity prices rising; higher prices for non-ferrous metals and crude oil provide strong input cost support. Second, the anti-involution effects in industries such as solar photovoltaic and lithium batteries are gradually becoming visible, with product prices improving—for example, the price increase in solar photovoltaic equipment widened by 2.7 percentage points from January to 3.2%, and the year-on-year manufacturing price of lithium batteries shifted from -1.1% in January to 0.2%. Third, the development of new quality productive forces has created a clear pull on PPI for high-tech manufacturing and some downstream industries; the surge in computing power demand further drove prices along related supply chains upward.

What is the relationship between PPI, PPIRM, and other statistical indicators? Are there any leading indicators among them? How is this related to the overall economy’s repair timeline?

Guotai Fund Management Co., Ltd. stated that PPI reflects firms’ product selling prices, while PPIRM reflects input material costs; the difference between the two can represent the profit situation of industrial enterprises. The price subcomponent of the PMI (Purchasing Managers’ Index) can be seen as a leading indicator for PPI. Since PPI functions as an upstream leading indicator, in theory it transmits along the industry chain to the CPI—serving as an upstream signal for a rebound in prices.

Currently, the narrowing of PPI’s year-on-year decline and the continued positive month-on-month figures are marginal recovery signals of improving demand and effective policy implementation. Going forward, if PPI’s year-on-year growth turns positive and continues rising, it would mean improved industrial profitability, companies expanding capacity, and the economy entering a phase of comprehensive recovery.

So, to keep PPI on a recovery path and ultimately turn it positive, what favorable conditions need to be built up?

In response, Guotai Fund Management Co., Ltd. said it is necessary to keep fiscal spending on infrastructure and people’s livelihoods at appropriate levels to effectively boost demand for upstream industrial goods. Also, the monetary environment should remain reasonably ample to reduce corporate financing costs and support the recovery of production and investment. At the same time, the ongoing implementation of anti-involution measures in segmented industries should be pushed forward to orderly dispose of excess capacity. As domestic economic cycles become smoother and enterprise profitability improves, along with rising prices for external bulk commodities, multiple favorable conditions will stack together, and PPI’s year-on-year figure is expected to turn positive in the future.

High certainty in areas like computing power

From the subitems, prices for computing power and artificial intelligence-related upstream and downstream products rose clearly. Prices for industries related to “involution-style” competition governance—such as solar photovoltaic and lithium batteries—rebounded. Price declines narrowed for industries including coal mining, cement manufacturing, and new energy vehicle manufacturing.

On a month-on-month basis, in February, prices for electronic semiconductor materials, external storage devices and components, and the integrated circuit packaging and testing series rose by 2.8%, 1.2%, and 1.1%, respectively. On a year-on-year basis, in February, prices for the manufacturing of electronic components and electronic special materials rose 4.9%; the price of controlling micro-motors rose 1.6%; the price of services consumption robot manufacturing rose 0.7%; and growth in high-end equipment was strong, with the price of aircraft manufacturing rising 7.7%.

This year, which industries have investment opportunities?

In response, Guotai Fund Management Co., Ltd. said that on one hand, demand related to the AI (artificial intelligence) computing power industry chain has remained robust. Supply and demand for key segments such as computing power, servers, and optical modules are somewhat tight, giving prices upside elasticity, making it a direction with relatively high performance certainty. On the other hand, as “involution-style” competition in the industry gradually eases, prices in new energy areas such as solar photovoltaic and lithium batteries stabilize and return to growth, and profitability will recover. At the same time, benefiting from rising commodity prices and inflation expectations, upstream resources and building materials sectors have valuation-repair opportunities. Overall, this year, the focus is more on industries where prices have expectations and the competitive landscape is improving—especially investment opportunities in AI computing power, upstream resources, and building materials.

Looking ahead, Feng Lin said that on one hand, the situation in Iran is pushing international oil prices significantly higher, which to some extent will transmit to domestic prices, forming momentum for CPI to rise. On the other hand, after the Spring Festival, service consumption prices will seasonally fall sharply; it is expected that the month-on-month CPI in March will turn negative, and the year-on-year growth rate will fall back to around 0.9%. In this year’s government work report, the CPI growth target has continued to be set at “around 2%.” In recent years, the overall price level has been relatively low; this target growth rate has greater significance than before. The “around 2%” CPI growth target this year will have more rigidity than last year, which also means that expanding domestic demand and continuing to push back on involution will proceed further.

Daily Economic News

(Editor: Wang Zhiqiang HF013)

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