China May wholesale inflation hits near 4-year high on Iran war, AI costs; CPI misses
A customer shops for gold jewelry at a gold store in Hangzhou, China’s Zhejiang Province, on June 3, 2026.
Cost photo | Nurfoto | Getty Images
While wholesale prices in China experienced the fastest rise in nearly four years in May due to the increasing raw material costs due to the Iran war and the explosion in artificial intelligence investments, consumer inflation was below expectations.
The producer price index rose 3.9% from a year ago, reaching its highest level since July 2022, beating economists’ forecast of 3.8% and 2.8% in April, according to data published by the National Bureau of Statistics on Wednesday.
Wholesale prices returned to growth in March as a rise in input costs resulting from the conflict in the Middle East lifted the economy from its longest deflationary streak in decades.
The increase in global commodity prices increased the PPI due to the Iranian war restricting traffic in the Strait of Hormuz and interrupting the flow of energy and raw materials.
Along with higher commodity costs, wholesale prices have also been supported by increased demand for AI computing power, causing prices of technological equipment and semiconductors to rise.
Consumer prices rose 1.2% in May from a year earlier, missing economists’ forecasts for 1.3% growth in a Reuters poll. On a monthly basis, consumer inflation decreased by 0.1% compared to April.
Core CPI, excluding volatile food and energy prices, increased by 1.1% in May compared to the previous year, falling behind the 1.2% increase in April.
China has cushioned the worst of the energy shock thanks to its strategic oil stocks and diversified mix of renewable energy sources. The world’s largest oil importer has reduced its crude imports by nearly 20% since the start of the Iran war, limiting global oil prices from trading even higher, according to official customs data compiled by Wind Information.
Economists have warned that supply-driven reflation risks further pressuring companies’ profit margins and reducing household consumption demand.
China’s export growth performed better than expected in May, increasing by 19.4% compared to the previous year in US dollar terms; This was the biggest increase in three months, fueled by rising demand for renewable and AI-related goods.
“Consumers in China are clinging tightly around their hard-earned renminbi,” said Frederic Neumann, chief Asia economist at HSBC Bank; because the high household savings rate suppressed spending at a time when the economy needed to find new drivers for growth besides exports.
Recent earnings from global luxury brands such as Ralph Lauren and LVMH Moet Hennessy Louis Vuitton showed a recovery in appetite for high-end beauty and fashion products in a market plagued by markdowns that have eroded margins in recent years.
But economists have warned that early signs of the high-end recovery could be fragile, buoyed by the recent rally in the tech-focused stock market and the wealth impact of last year’s low base.
“It would be premature to generalize the recent recovery as evidence of a broad-based recovery in consumer sentiment,” said Evercore ISI China economist Neo Wang, amid the ongoing collapse in the real estate market and the dismal job market.
