Commentary: China’s Factory-Gate Deflation Is Finally Nearing an End
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Although China’s Producer Price Index remains in negative territory year-over-year, an accelerated upward revision is well underway. The long-standing deflationary pressure that has gripped the industrial sector is steadily dissipating.
For years, pandemic shocks introduced severe distortions to economic operations, suppressing natural business cycles. However, as the economy gradually rebalances and the so-called scarring effects fade, cyclical forces are once again taking the wheel. A look at the trajectory of China’s producer prices confirms this cyclical resurgence.
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- China’s Producer Price Index (PPI) has shown five consecutive months of month-over-month growth since June 2025, narrowing the annual decline to -0.9% by February 2026.
- Structural reforms and stimulus policies since September 2024 have reduced industrial overcapacity and boosted infrastructure investment, rebalancing supply and demand.
- Global commodity price increases since mid-2025 have further supported China’s PPI recovery, making positive year-over-year PPI growth likely by Q2 2026.
- Bank of Qingdao
- Liu Xiaoshu, the Chief Economist at Bank of Qingdao, states that China's Producer Price Index is on an upward trajectory. He anticipates a return to positive year-over-year growth in producer prices by the second quarter of 2026. This recovery is driven by systematic repairs of supply and demand imbalances, including infrastructure support and manufacturing discipline.
- Sept. 24, 2024：
- Comprehensive stimulus policies are introduced in China to address structural economic imbalances.
- Second half of 2024：
- Beijing begins to actively push back against excess competition and overheated investment in manufacturing.
- By April 2025：
- The gap between supply and demand in China's industrial sector bottoms out and begins to narrow.
- After April 2025：
- Marked slowdown in growth of manufacturing investment helps reduce oversupply.
- Since June 2025：
- Chinese producer prices re-enter an upward channel; global commodity prices, including oil and metals, also resume climbing.
- By February 2026：
- China's Producer Price Index contraction narrows to minus 0.9%, with five consecutive months of positive month-over-month growth.
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