China’s factory gate prices increased sharply in June amid disruptions linked to the Middle East conflict, driven primarily by rising energy costs following the closure of the Strait of Hormuz. Official data released by the National Bureau of Statistics (NBS) showed a 6.1 percent year-on-year rise in the producer price index (PPI), up from a 3.9 percent increase in May and aligning with analyst forecasts.
The escalation in input costs comes as tensions between the United States and Iran recently intensified, impacting global energy supply chains. The NBS highlighted that non-ferrous metals and wires rose by 21.6 percent, fuel and power climbed 11.8 percent, and chemical raw materials advanced 11.5 percent year on year. Despite these annual increases, month-on-month figures softened, with the overall PPI declining 0.3 percent from May. Dong Lijuan, chief statistician of the NBS’s urban division, attributed the monthly dip partly to falling international crude oil prices.
China’s consumer price index (CPI) registered a more moderate increase of 1 percent in June compared to the previous month’s 1.2 percent and slightly below forecasts. Transportation and communication costs saw the largest CPI contributions, rising 4.1 percent. Conversely, petrol prices dropped by 4.9 percent compared with a year earlier.
The Strait of Hormuz, a key maritime chokepoint for global oil shipments, was temporarily closed following US and Israeli attacks in the region, disrupting supply chains and causing energy prices to surge. Last month, the US and Iran reached a tentative 60-day truce that included reopening the strait, but renewed hostilities have cast doubt on the ceasefire’s durability. US President Donald Trump stated on Wednesday that he considered the ceasefire effectively over.
Economists offered mixed interpretations of the inflationary trends. Julian Evans-Pritchard, chief China economist at Capital Economics, observed that June’s inflation increases triggered by the Iran conflict appeared to be easing, noting declines in output prices across most sectors and predicting inflation to stabilize once energy supplies normalize.
Similarly, Goldman Sachs reported that the recent rise in producer prices was mainly concentrated in downstream industries, particularly in electronic equipment manufacturing such as computers and communication devices. The bank suggested that the energy-driven price shock may have peaked, forecasting the PPI to ease, ending 2026 with roughly 2 percent growth and flat growth expected next year.
Despite signs of moderation, supply chain experts cautioned that shortages persisted for key industrial inputs, exacerbated by export controls on materials like carbon fiber and its composites. High-tech manufacturers in particular continue to face challenges, with the energy crisis compounding existing scarcities in advanced semiconductors and other critical components.
The ongoing instability in the Middle East thus remains a significant factor influencing China's industrial pricing environment, with broader implications for global supply chains and inflation dynamics.