Nomura Asia Insights: China — Raising CPI and PPI Inflation Forecasts

Nomura has significantly revised upward its 2026 inflation forecasts for China, driven by energy supply disruptions from the Middle East conflict and rising prices for non-ferrous metals and storage chips. The annual PPI inflation forecast has been raised from negative 1.2% to positive 1.0%, with quarterly projections of negative 0.7%, positive 2.4%, positive 1.5%, and positive 1.0% from Q1 through Q4.

The annual CPI inflation forecast has been increased from 0.4% to 0.6%, with quarterly projections of 0.8%, 0.8%, 0.5%, and 0.4%, respectively. Brent crude oil prices have surged to approximately USD 120 per barrel, while LNG prices have risen 40.4% since late February to RMB 5,129 per ton.

Nomura notes that for every 10% increase in oil prices, PPI inflation rises by approximately 1.0 percentage point, and for every 10% increase in LNG prices, PPI inflation rises by roughly 0.8 percentage points. The disruption to the Strait of Hormuz is particularly impactful, as it serves as a transit route for 36.5% of China's oil consumption and 6.6% of its LNG consumption.

Despite the upward inflation pressure, Nomura expects the People's Bank of China to maintain accommodative monetary policy, retaining its forecast for a 10 basis point rate cut and a 50 basis point reserve requirement ratio cut in Q2. The inflation is primarily driven by supply-side factors, while domestic demand remains weak.