Since August last year, the prices of upstream raw materials represented by base metals have surged significantly. The Producer Price Index (PPI) has improved for five consecutive months, and the Consumer Price Index (CPI) in December even hit the highest increase in nearly three years. Currently, the prices of upstream materials such as copper continue to rise, and there is concern about whether domestic PPI and CPI can further rebound from low levels this year.
Whether from the perspective of historical laws or the transmission path of current policies, upstream industries are the key to predicting the pace and magnitude of this year's PPI rebound," Wu Chaoming, chief economist of Caixin Financial Holdings and vice president of Caixin Research Institute, told a reporter from Securities Times. He noted that the current PPI rebound is mainly concentrated in a few upstream industries, showing obvious structural characteristics. The driving force behind this round of growth mainly comes from coal, ferrous metals and non-ferrous metals, while traditional petrochemical and other sectors are still absent and there is still room for improvement.
According to data from the National Bureau of Statistics, in 2025, the profits of the ferrous metal smelting and rolling processing industry increased threefold compared with 2024, while the non-ferrous metal smelting and rolling processing industry grew by 22.6%. However, the chemical raw materials and chemical products manufacturing industry, textile industry, oil and natural gas extraction industry, and coal mining and washing industry all showed declines to varying degrees, with decreases of 7.3%, 12.0%, 18.7%, and 41.8% respectively.
Wu Chaoming believes that whether upstream prices can be smoothly transmitted to the midstream and downstream is the key to determining the extent and sustainability of PPI recovery. The smoothness of this transmission mechanism fundamentally depends on the degree of recovery in terminal demand. With the continuous advancement of domestic demand policies, it is expected that the year-on-year PPI will turn positive from April to May this year, showing a trend of "fast first and then stable" throughout the year.
The mechanism by which traditional upstream prices are transmitted to the downstream has undergone significant changes since 2012, with the trends of CPI and PPI continuing to diverge," said Zhang Di, chief macro analyst at Galaxy Securities, based on empirical data. He noted that during periods of relatively expanding terminal demand and coordinated policy efforts, price changes on the production side are more likely to be transmitted to the consumption side, and the positive impact of PPI on CPI is relatively significant. However, during periods of deepening economic structural adjustments, insufficient domestic demand, or fluctuations in international commodity prices coupled with limited terminal demand absorption capacity, the price transmission mechanism is significantly weakened or even temporarily ineffective. It is worth noting that as the characteristics of demand constraints have become more prominent in recent years, the reverse restraining effect of consumer prices on production prices has increased.
Currently, clear signals have been sent at the macro level, all pointing to a trend of rising prices in 2026. 2026 is the first year of the "15th Five-Year Plan". It is expected that the policy focus will further concentrate on the domestic economy, making coordinated efforts from both the supply and demand sides. On the demand side, the Central Economic Work Conference has placed "adhering to domestic demand leadership" at the top of its key tasks, striving to boost consumption and promote investment to stop falling and stabilize. Under the combined effect of the above policies, a moderate recovery in price trends will be a high-probability event.
Zhang Di believes that from the cost perspective, the rebound in prices in the short to medium term will still be dominated by the cost-push and substitute-pull effects brought about by the rise in international bulk commodity prices. As global commodity prices enter an upward phase, the increase in raw material prices will first be transmitted to the domestic production end through the cost channel, continuing to support the ex-factory prices of industrial products, thereby providing short-to-medium-term upward momentum for PPI. On this basis, the transmission of upstream costs to the downstream will gradually become apparent, supporting the prices of terminal consumer goods and driving a moderate rebound in CPI.
Driven by rising raw material prices, the divergent trends and transmission logic between PPI and CPI have become the core of bond market pricing. This means that although rising raw material prices can push PPI from negative to positive, the driving effect on CPI will still be limited by competition in end-consumer markets and profit buffers," according to Wanbai Fund, a 10-billion-yuan bond private equity institution. As a variable at the uppermost stream of the industrial chain, rising raw material prices can indeed drive PPI to rebound. However, due to the high competitive pressure on mid-stream manufacturers in China's market, their bargaining power over downstream enterprises is weak. Coupled with the stickiness in the recovery of downstream demand, the transmission efficiency from PPI to CPI has dropped to a weakly correlated range of about 0.3-0.4, with a lag effect of 3-6 months.
