The Iran conflict ended three years of deflation at China’s factory gates,
pushing CPI inflation to its highest level since early 2023, factoring in the
Lunar New Year, according to Capital Economics' Zichun Huang.
However, Huang notes the uptick is modest and unlikely to last. The war’s impact
was mainly seen in fuel, petrochemicals, and non-ferrous metals, particularly
due to global aluminum supply disruptions. Yet, government measures like fuel
price caps limited the effects, with little pass-through to consumer goods.
Huang expects inflation to rise in the short term but predicts headline CPI will
peak below the central bank’s target before falling under 1% by year-end,
assuming the cease-fire holds.
