SunSirs: Energy Shock Wave Persists as Global Inflation Strategies Fracture

The United Nations recently released its "Medium-term Economic Trends and Outlooks in the World 2026" (hereinafter referred to as "Trends and Outlooks"), which points out that the global economy is facing multiple challenges such as growth pressure, rising inflation, and increased uncertainty in financial markets due to the Middle East crisis. "Trends and Outlooks" has revised the global economic growth forecast for 2026 from 2.7% at the beginning of the year to 2.5%, and has significantly revised the global inflation rate forecast for the same period up by 0.8 percentage points to 3.9%.

In the second quarter of this year, the energy shock wave triggered by the geopolitical conflict in the Middle East is still ongoing, becoming the core variable that affects the trend of inflation in various major economies. Against this backdrop, the global economy is facing a complex situation of "inflation not yet subsided and growth under pressure", and the policy paths of major central banks are showing differentiation. This paper attempts to analyze the global inflation situation in the second quarter and its transmission path to China through interviews with core viewpoints from international and domestic institutions, think tanks, and market analysts.

Global inflation

Shifting from demand-driven to supply-shock

Recently, journalists interviewed international and domestic institutions and experts on the global inflation situation, and the consensus view is that the global inflation recovery since 2026 is mainly due to supply-side shocks, with fluctuations in energy prices becoming the core variable. The IMF's quantitative analysis shows that if oil prices continue to rise by 10%, the global inflation rate will increase by about 0.4 percentage points, while also dragging on economic growth. The IMF expects that by 2027, the GDP growth rate in the Asian region will slow down by a cumulative 1 to 2 percentage points, while the inflation rate may be 1 to 4 percentage points higher.

More international observers believe that, against the backdrop of a global growth slowdown, the sources of inflation are becoming more diversified and the room for monetary policy adjustment is further narrowing, which has become the core feature of the global macroeconomy in the second quarter.

According to the views of many experts and institutions, in the second quarter of 2026, the global inflation situation will show several core features worth noting:

First, the game of "stagnation" and "inflation" is becoming the main line of global macro. This round of inflation is driven by supply-side shocks, and the effect of monetary policy to suppress inflation by raising interest rates is limited, which has put most central banks in a dilemma between " Maintaining growth" and "Controlling inflation". CITIC Securities expects that in the second half of 2026, the global economy will enter a stage where "stagnation and inflation are apparent but not out of control", and the duration of the oil price shock is the first variable that determines the path of global macro.

Second, inflation differentials deepen, and policy paths of various countries are becoming increasingly "differential". The unexpected rebound of inflation in the United States has sparked market expectations that the Fed will resume interest rate hikes; the eurozone is caught in a stagflation dilemma between low growth and high inflation, and the probability of interest rate hikes is rising. The global central bank policies, which were highly synchronized in the past few years, are becoming differentiated, which will have a profound impact on international capital flows and asset pricing.

Third, soaring energy prices drive a broad - based price increase. The core driver of this round of global inflation comes from the comprehensive surge in commodity prices, led by energy prices. The World Bank's "Commodity Markets Outlook" points out that the wars in the Middle East have had a major impact on the global commodity market, and it is expected that energy prices will soar by 24% in 2026. Driven by the surge in energy prices, as well as fertilizer prices and the historic highs of various key metal prices, the overall price of commodities is expected to rise by 16% to 37%. Indermit Gill, the chief economist of the World Bank Group, said, "The war has a multi - layer impact on the world economy—first, the rise in energy prices; then, the rise in food prices; followed by the rise in inflation, which then pushes up interest rates and increases the cost of debt."

The European Central Bank's chief economist, Lane, said that the current energy shock is different from four years ago, when it was driven by both demand and supply factors. Now, with global economic growth slowing and consumer demand relatively weak, the risk of inflation is unlikely to completely repeat the previous situation. Chris Williamson, the chief business economist at S&P Global, noted that the wars in the Middle East are increasingly impacting the eurozone economy, with survey data indicating that the eurozone economy is expected to contract by 0.2% in the second quarter.

Input inflation or focused on three transmission paths

Market analysts predict that China's inflation data will generally show a mild recovery trend in the second quarter, with obvious external input characteristics.

Wen Bin, chief economist of Minsheng Bank, said that the overall price level has continued to stabilize and rebound. Due to the improvement of the domestic supply - demand relationship, external input factors, and the low - base effect, it has presented a pattern of a mild rise in the CPI (Consumer Price Index) and a structural recovery in the PPI (Producer Price Index). Among them, the recovery of the CPI is mainly driven by the double superposition of "imported inflation" and the "holiday effect". Institutions such as Nomura Securities pointed out that the driving force of inflation is not entirely due to strong domestic demand, and it is necessary to pay attention to the squeeze on corporate profits and the purchasing power of residents' consumption.

Zhao Wei, chief economist of Shenwan Hongyuan Securities, believes that the unexpected areas of inflation in this round are concentrated in the middle and downstream rather than the upstream. The April PPI data, which is higher than the historical experience, is significantly higher than the historical experience due to the high oil prices accelerating the supply clearance in the middle and downstream of the petrochemical chain. Calculations show that the reduction in supply in the middle and downstream has pulled the PPI ring by about 0.8 percentage points, while the oil price itself has contributed only 0.7 percentage points. From the perspective of the long-term cycle of price trends, Cheng Shi, chief economist of ICBC International, pointed out that China's price movement is in the process of transitioning from the low level of inertia to a gentle recovery. The PPI year-on-year data has been narrowing since June 2023, and it is expected to turn positive from the end of the second quarter to the beginning of the third quarter, relying only on the rolling of the base. The low price inertia is slowing down.

Reporters interviewed a number of experts and analysts from market research institutions, and the specific paths of input inflation are focused on three aspects:

First is direct price transmission. Wang Qing, chief macroeconomic analyst at Dongfang Jinjing, said the prices of electronic components such as chips surged, driven by the global AI investment boom, and the transmission of international oil prices to the domestic market, which together pushed the April CPI and PPI higher. CITIC Futures said that crude oil prices are the most important driving factor at present, and the low traffic volume of the Strait of Hormuz and the upstream and downstream transmission will continue to push up inflation data in the second quarter.

Second, structural profit squeeze. Tao Tian, president of the Wanbo New Economy Research Institute, said that in the face of rising upstream raw material prices and insufficient downstream demand, small and medium-sized manufacturing enterprises and export companies, which are in the middle link, have weak bargaining power and their profits will be eroded.

The third is the squeeze effect on policy space. Most analysts believe that although the PBOC will not tighten monetary policy due to the moderate recovery in prices, the policy space for interest rate cuts is indeed being compressed. The core task of China's economy is still to expand domestic demand, stabilize employment, and promote industrial upgrading, which still requires the active cooperation of structural monetary policies, but the timing for a comprehensive cut in reserve requirements and interest rates has been postponed.

Pay close attention

The impact of input-type inflation on the operation of the domestic economy

Many experts have emphasized that China's buffer capacity against imported inflation is significantly stronger than that of other major economies. Cheng Shi quantified the analysis from relevant dimensions: First, the proportion of oil in China's primary energy structure is about 18%, much lower than that of the United States (36%), Japan (37%), and other countries, while coal and clean energy are the main components, and the latter is basically not affected by the internationalization of fossil energy prices; Second, under the same increase in oil prices, the direct pull-up of China's CPI is about 52% of that of the United States, and in extreme scenarios, it is only 36% of that of the United States.

Therefore, the report on the allocation of major assets in China believes that the overall impact of the geopolitical conflicts in the Middle East on China's imported inflation is limited, especially as China's sources of imported bulk commodities are becoming more diversified, and the land route and alternative supply system are constantly improving, the overall risk resistance in the medium and short term is still strong.

However, the dual impact of input-driven inflation on China's industrial sector and inflation expectations should not be overlooked. CICC's research report believes that the recent rise in core CPI is more supported by the increase in the price of gold jewelry (contribution of about 0.6 percentage points) and the trade-in policy (contribution of about 0.2 percentage points), and if the impact of gold prices is excluded, the core CPI actually increased by about 0.6% year-on-year, and the upward momentum driven by endogenous consumer demand is still not obvious. The report also points out that Japan's experience of finally getting out of deflation shows that if there is enough policy hedging and employment and capacity clearance fundamentals in the face of external negative shocks, it is possible to move towards a benign inflation equilibrium. Gontong Futures Research believes that the impact of input-driven inflation is dual: on the one hand, it pushes up the cost of the middle and downstream manufacturing industry and squeezes profits, on the other hand, it creates conditions for PPI to turn positive and helps to break the dilemma of three consecutive years of negative PPI.

IMF's Asia-Pacific director, Srinivasan, said there are early signs of a resurgence of inflation in China, but a sustained increase in prices would be needed to determine if inflation has officially re-emerged. The key question is whether this could trigger a broader re-inflation characterized by accelerating growth in corporate profits and workers' wages.

Faced with the inflationary pressure of imported inflation, the focus of the central bank's policy has been adjusted clearly. The 2026 Q1 China Monetary Policy Implementation Report recently released by the central bank officially included the imported inflation, which was previously in a secondary position, into the core observation and risk prevention and control vision, and listed geopolitical risks as the most important external variables to be considered. On the level of policy operation, the report deleted the expression of "cutting reserve requirements and interest rates", replacing it with "flexibly using a variety of monetary policy tools", which has attracted widespread attention from the market.

Team Zhao Wei believes that the central bank's weakening of the description of cutting reserve requirements and interest rates does not signal a tightening of policy, but rather to avoid the superposition of policy operations and supply shocks, which could cause disturbances. However, the report still retains the phrases "adequate liquidity" and "relaxed financing conditions", reflecting the central bank's orientation to offset supply shocks and stabilize market expectations. Teng Tai stated that the 1.7% increase in the PPI on a month-on-month basis is quite prominent, and its sustainability needs to be closely monitored. If the international commodity prices continue to rise, the pressure of imported inflation will further increase, forming a certain constraint on the domestic monetary policy space.

The PBOC pointed out in the report that the main price indicators "are showing a gentle recovery trend" supported by "more proactive and effective macro policies" and "the continuous optimization of market competition order". However, it is necessary to closely monitor the impact of "external input inflation on the operation of the domestic economy". CITIC Securities expects that in the second half of 2026, policies will focus on three main lines: on the supply side, strengthening "anti-internal competition" to promote capacity clearance; in terms of new quality productivity, AI computing power, power systems and other tracks are entering a period of capital expenditure expansion; in terms of reform, broadening the channels for financial resources through fiscal and taxation reforms.

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