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 prices 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 timing mismatch” factor, the main drivers include rising service prices (air tickets, car rentals, travel agencies, hotel stays), as well as increases in crude oil and gold prices. Under 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 about 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 from oil price increases; instead, the focus will be on observing demand-side changes.

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

In February, China’s PPI and CPI both exceeded market expectations, with the former 0.3 and the latter 0.4 percentage points above Wind’s consensus forecast. The PPI saw a month-on-month increase of 0.4%, the highest since May 2022, matching the previous reading, and its year-on-year figure continued to rebound to -0.9%, surpassing Wind’s forecast by 0.3 percentage points. Breaking down the drivers of the February PPI increase, we estimate that contributions from non-ferrous metal smelting and rolling, chemical raw materials and chemical products manufacturing, computer communication and electronic equipment manufacturing, oil and natural gas extraction, and non-ferrous mineral mining were 0.32, 0.08, 0.08, 0.04, and 0.02 percentage points respectively (overall PPI month-on-month +0.4%). The prices of black materials such as coal mining and washing, ferrous metal mining, non-metal mineral mining, and non-metal mineral products showed relatively flat performance, with month-on-month declines of -0.5%, -0.8%, -0.6%, and -0.2%.

The February CPI also significantly exceeded market expectations, rising from 0.2% in January to 1.3% in February, 0.4 percentage points above Wind’s forecast. The sharp rebound in CPI includes the impact of the “Spring Festival timing mismatch” (2026’s Spring Festival falls in February, 2025’s in January). Besides this, notable factors include rising service prices (air tickets, transportation rentals, travel agency fees, hotel stays) and increases in crude oil and gold prices.

1. Service CPI rose more than expected. In February, service CPI increased by 1.1% month-on-month, higher by 0.4 percentage points compared to the same period in previous years (both with Spring Festival in February). The most notable sub-item was tourism, with airline tickets, transportation rentals, travel agency charges, and hotel prices rising by 31.1%, 24.7%, 15.8%, and 7.3% respectively, collectively contributing about 0.32 percentage points to the CPI increase, accounting for over 30% of the total.

2. Crude oil prices rose more than expected. Energy CPI for transportation equipment increased by 2.8% month-on-month, and with continued oil price increases, this segment is expected to sustain strong growth momentum.

3. Gold prices contributed significantly. Other goods and services CPI rose by 2.3% month-on-month, with a year-on-year increase of 15.4%, also providing strong growth impetus to 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. As of March 9, Brent crude spot prices have increased from $71.4 per barrel in February to $85.4, with potential to hit $100 under current developments.

Similar extreme oil price shocks affected domestic prices during the Russia-Ukraine conflict in 2022. From December 2021 to March 2022, Brent crude spot prices rose from $74.1 to $87.4, $98.3, and $119.0 per barrel, with monthly increases of 17.9%, 12.6%, and 21.0%. 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 (Brent benchmark) could impact China’s PPI by about 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 turn for the 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 from 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 as economic growth momentum weakened.

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 PPI exceeding expectations driven by rising oil prices could temporarily push long-term interest rates above 1.8%. In the longer term, under weak domestic demand, the pass-through of upstream price increases to downstream may be limited. If the CPI growth rate remains modest, maintaining low financing costs and a loose monetary environment could keep risks manageable, leading to a range-bound and stable bond market despite short-term risks.

Risk Factors:

• Unexpected escalation of China-U.S. trade tensions and worsening external environment.
• Demand recovery in China falling short of expectations.
• The Federal Reserve’s monetary policy exceeding expectations.
• Geopolitical risks changing unexpectedly.

(Source: People’s Financial News)