If non-ferrous metals continue their upward trend, they are expected to help drive a moderate increase in CPI.

Securities Times Reporter Wei Shuguang

Since August last year, the prices of upstream raw materials, represented by basic metals, have surged significantly. The Producer Price Index (PPI) has improved for five consecutive months, and in December, the Consumer Price Index (CPI) reached its highest increase in nearly three years. Currently, the continued rise in upstream materials like copper has attracted attention, raising questions about whether domestic PPI and CPI can further rebound at low levels this year.

“Whether from historical patterns or current policy transmission channels, upstream industries are key to predicting the pace and magnitude of PPI recovery this year,” said Wu Chaoming, Chief Economist of Caixin Financial Holdings and Vice President of Caixin Research Institute, in an interview with Securities Times. He noted that the current PPI rebound is mainly concentrated in a few upstream sectors, showing clear structural characteristics. The main drivers of this round of price increases are coal, ferrous metals, and non-ferrous metals, while traditional petrochemical sectors still have room for growth.

According to data from the National Bureau of Statistics, profits in the ferrous metal smelting and rolling processing industry are expected to triple in 2025 compared to 2024, while profits in the non-ferrous metal smelting and rolling industry are projected to grow by 22.6%. However, industries such as chemical raw materials and chemical products manufacturing, textiles, oil and natural gas extraction, and coal mining and washing have all experienced varying degrees of decline, with decreases of 7.3%, 12.0%, 18.7%, and 41.8%, respectively.

Wu Chaoming believes that whether upstream prices can smoothly transmit to mid- and downstream sectors is crucial for the extent and sustainability of PPI recovery. This transmission mechanism fundamentally depends on the recovery of terminal demand. With the continued implementation of domestic demand policies, it is expected that year-on-year PPI will turn positive between April and May, showing a “fast first, then steady” trend throughout the year.

“The traditional mechanism of upstream prices passing down to downstream sectors has changed significantly since 2012, with CPI and PPI trends diverging persistently,” said Zhang Diji, Chief Macro Analyst at Galaxy Securities, based on empirical data. He explained that during periods of relatively expanding terminal demand and policy coordination, price changes at the production end are more easily transmitted to consumption, and PPI has a more significant positive impact on CPI. However, during phases of deepening economic structural adjustments, insufficient domestic demand, or international commodity price fluctuations with limited terminal demand absorption, the price transmission mechanism weakens or even temporarily fails. Notably, as demand constraints have become more prominent in recent years, the negative feedback effect of consumer prices on producer prices has strengthened.

At the macro level, clear signals have been issued indicating that prices will trend upward again by 2026. 2026 marks the beginning of the 14th Five-Year Plan, with policy focus expected to shift further toward the domestic economy, working from both supply and demand sides. On the demand side, the Central Economic Work Conference prioritized “insisting on domestic demand-led growth,” aiming to boost consumption and stabilize investment. Under these combined policies, a moderate rebound in prices is highly probable.

Zhang Diji believes that, from a cost perspective, in the short to medium term, price increases will mainly be driven by rising international commodity prices and substitution effects. As global commodity prices enter an upward phase, raw material prices will first transmit through cost channels to domestic production, continuously supporting industrial product prices and providing short-term upward momentum for PPI. Based on this, upstream cost increases will gradually pass down to downstream sectors, supporting terminal consumer prices and leading to a gentle rise in CPI.

“Driven by rising raw material prices, the divergence and transmission logic between PPI and CPI have become central to bond market pricing. This means that although rising raw material prices can push PPI from negative to positive, their impact on CPI will still be limited by competition in terminal consumption and profit buffers,” said Wanbai Fund, a private bond investment firm managing over a billion yuan. They noted that raw materials, as the uppermost variable in the industrial chain, can indeed boost PPI, but due to intense competition among midstream manufacturers and their weak bargaining power over downstream firms, coupled with sticky downstream demand recovery, the transmission efficiency from PPI to CPI has fallen to a weak correlation range of about 0.3–0.4, with a lag of 3–6 months.