China’s wholesale inflation hits near 4-year high in May as Iran war and AI boom push up costs – Firstpost

China’s factories faced higher costs in May as the Iran war disrupted global supplies of oil and raw materials, while the country’s artificial intelligence (AI) boom increased demand for chips and technology equipment.

Data released on Wednesday by the National Bureau of Statistics showed that China’s producer price index (PPI), which measures prices charged by factories and manufacturers, rose 3.9 per cent in May from a year earlier. That was the fastest increase since July 2022 and slightly higher than economists had expected.

The rise suggests that companies were paying more for the materials and equipment needed to make goods in May.

A major reason was the conflict involving Iran, which disrupted shipping through the Strait of Hormuz, one of the world’s most important routes for oil and energy supplies. The disruption pushed up prices for crude oil and other commodities used by manufacturers.

At the same time, China’s race to build more AI infrastructure created strong demand for semiconductors, servers and advanced computing equipment. That helped lift prices across parts of the technology supply chain.

While factories faced higher costs in May, Chinese consumers continued to spend cautiously.

Consumer inflation rose 1.2 per cent in May from a year earlier, slightly below economists’ expectations of 1.3 per cent. Compared with April, consumer prices fell 0.1 per cent.

The figures suggest that many households remained careful with their spending despite signs of improvement in parts of the economy.

China managed to limit some of the impact of higher energy prices. The country relied on its strategic oil reserves and growing renewable energy capacity to cushion the shock. It also reduced crude oil imports by nearly 20 per cent since the Iran war began, according to customs data.

Exports, however, remained a bright spot in May.

China’s exports grew 19.4 per cent in May from a year earlier, marking the strongest increase in three months. Demand for renewable energy products, batteries and AI-related goods helped drive the growth.

The latest data from May highlighted a growing divide in China’s economy. Exporters and technology companies benefited from strong global demand and AI investment, while many consumers continued to hold back on spending because of concerns about the future.