MNI: China PPI To Turn Positive In Q3 - Analysts

China’s Producer Price Index (PPI) is projected to turn positive in the third quarter, ending a 40-month stretch of contraction, as strong capex investment at home and abroad prompts price increases, local analysts told MNI.

Robust demand for copper — fuelled by rapid expansion of AI infrastructure and green investment — along with supply constraints surrounding U.S. tariff measures, should continue to provide upward pressure on producer prices in 2026, said Chim Lee, senior China analyst at the Economist Intelligence Unit, after prices in the non-ferrous mining and processing sector rose 22.7% in January, with smelting up 17.1%. 

“The gains in metal prices were a major factor behind January’s moderation in overall PPI decline to -1.4% year on year, marking the fourth consecutive month of narrowing contraction,” said Lee, who recently upgraded his full-year PPI forecast to a 0.3% increase, up from a marginal decline.

Demand tied to artificial intelligence and data-centres should quicken price increases for inputs such as batteries, memory chips and renewable-energy equipment globally, he added, noting Beijing’s requirement that new data centres source at least 80% of their power from renewable sources.

Meanwhile, price trends in real estate-linked sectors such as steel and cement are likely to remain weak, though some support from local government spending was expected as new project starts rebound, with last year’s focus on reducing hidden debt easing and freeing up funds, Lee said. (See MNI: China's Fixed-asset Investment To Stabilise)

The launch of major infrastructure initiatives by central authorities in the first year of the 15th Five-Year Plan will also help cushion weakness and provide broader support for input prices, he added.

EXTERNAL DEMAND

Reindustrialisation policies across advanced economies should also provide support to China’s PPI this year, said Dan Wang, China director at Eurasia Group, who expected the index to turn positive in Q3.

Efforts to set up manufacturing bases outside of China, both by domestic firms going abroad and foreign governments concerned with self-sufficiency, would inevitably rely on the country’s dominant production of capital and industrial intermediate goods, Wang noted.

But Chinese government efforts to curb excessive competition — often referred to as “involution” — are likely to have only a limited impact on PPI this year, Wang continued. The campaign is primarily aimed at preventing the most aggressive forms of price competition, with less emphasis on reducing upstream capacity, Wang added.

CPI TRANSMISSION

Higher producer prices are unlikely to translate into significant consumer inflation, reflecting China’s distinctive structural dynamics, Wang noted, after CPI inflation slowed to 0.2% in January, compared with 0.8% in December.

China’s CPI basket differs substantially from those of most other major economies and is heavily influenced by food prices — particularly pork. Consequently, the broader food cycle and more specifically the pork cycle, largely determines movements in overall CPI, with less linkage to PPI, Wang noted. (See MNI INTERVIEW: China's Pork Prices To Slow Q1)

Higher overseas demand would however support revenue growth for firms with significant foreign exposure in 2026, Wang said. She noted that an increasing number of China’s listed firms now have meaningful international-facing segments, which often account for roughly 30% to 50% of total revenue.