China: The upstream-driven PPI shows weak transmission effect.

Upstream-driven PPI, weak Oil continued toliftPPI and support energy CPI, while coreand services inflationsoftened,pointing to limitedsecond-roundeffectsamid weak domestic demand. PPI gainsremained concentrated in upstream, while downstream Ying Zhang +852 2903 2652ying.zhang3@barclays.comBarclays Bank, Hong Kong Yingke Zhou+852 2903 2653yingke.zhou@barclays.comBarclays Bank, Hong Kong •May: 1.2% y/y for CPI, and 3.9% y/y for PPI Jian Chang +852 2903 2654jian.chang@barclays.com •Bloomberg consensus forecast (Barclays): 1.3% (1.2%) y/y for CPI, and 3.9% (4.0%) y/y for PPI •April: 1.2% y/y for CPI, and 2.8% y/y for PPI The May price data suggest oil prices continued to push up PPI inflation and energy-relatedcomponents of CPI, while the impact on core and services CPI remained contained, pointing tolimited second-roundeffects.On a month-on-month basis, PPI began to normalize alongsidesomewhat lower-though-still-elevated oil prices. Price declines emerged in oil and gas The May PPI breakdown underscores the uneven impact of the Middle East conflict on prices.Upstream segments continued to lead, with raw materials rising by 9.2% y/y (April: 7.1%) andmining by 15.8% (April: 10.6%). While select manufacturing segments such as electricalmachinery and electronics saw some price gains, overall manufacturing inflation remained CPI was unchanged at 1.2% y/y in May, with larger support from energy in May comparedwith April. Despite lower oil prices in the month, a favourable year-ago base pushed domesticgasoline inflation higher (23.5% y/y versus 19.3%),liftingits contribution to headline CPI toaround 0.66pp (from 0.56pp previously). Elsewhere, both core and services CPI edged lower, CPI breakdown: Slower core and services inflation Looking at the breakdown, we highlight some of the key developments in the CPI data: •Goods CPI inflationrose by 1.6% y/y in May versus 1.4% in April, as faster gasoline priceinflation more thanoffsetthe declines in food prices. Supported by a favourable year-agobase, domestic gasoline price inflation accelerated to 23.5% y/y from 19.3%, contributing about 0.66pp to headline CPI, up from 0.56pp previously. In contrast, food CPI fell for asecond month, down 1.7% y/y (April: -1.6%), subtracting 0.3pp from the headline print,mainly driven by a deeper decline in pork prices andsofterfruit prices. Core CPI eased slightly to 1.1% y/y from 1.2%, below its pre-conflict average of 1.3% inJanuary–February. Within that, gold jewellery remained a contributor, adding 0.17pp toheadline inflation, although its impact has moderated (0.2pp in April) alongside easing goldprice growth. Vehicle prices continued to decline, down 1.1% y/y and 0.4% m/m. Prices in Services CPI inflationedged down to 0.8% y/y in May from 0.9% in April. Travel-relatedservice prices moderated by 0.9pp to 2.8% y/y. Prices of basic public services remainedlargely stable, with healthcare services (May: 3.2%, April: 3.4% ), household services (steadyat 1.1%) and education services (steady at 0.5%) continuing to rise. Housing rents declinesheld at 0.6% y/y in May, still the fastest pace of decline since January 2023, while data from PPI breakdown: Notable rise in upstream sectors May PPI advanced for a second month, rising by 3.9% following a 2.8% gain in April. The notableimprovement was supported by surging prices in non-ferrous metals and energy-relatedsectors, with rising copper prices amid strong AI and green tech-related demand and supplyconcerns amid the Middle East conflict. On a m/m basis, the increase in PPI moderated to 0.5%, Looking at the breakdown, PPI gains remain highly concentrated in upstream sectors. Theproducer goods PPI for mining (May: 15.8% y/y, April: 10.6%, March: 2.0%) and raw materials(May: 9.2%, April: 7.1%, March: 1.1%) accelerated, while manufacturing PPI picked up at a muchmeasured pace (May: 2.3%, April: 1.5%, March: 0.9%). According to the NBS, non-ferrous miningand processing led the upside, alongside strong gains in coal and selected manufacturingsegments such as electrical machinery and electronics, contributing 2.56pp to the headline PPIprint (April: 2.05pp). Energy and chemicals were another key driver, with oil and gas extraction, Source: Wind, Barclays Research Source: Wind, Barclays Research Analyst(s) Certification(s): We, Yingke Zhou, Jian Chang and Ying Zhang, hereby certify (1) that the views expressed in this research report accurately reflect our personal viewsabout any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or Important Disclosures: Barclays Research is produced by the Investment Bank of Barclays Bank PLC and itsaffiliates(collectively and each individually, "Barclays"). All authors contributing to this research report are Research Analysts unless otherwise indicated. The publication date at the top of the report reflectsthe local time where the report was prod