China’s producer price index surged to a four-year high in June, climbing 4.1% from a year earlier and intensifying the squeeze on manufacturers caught between rising input costs and tepid domestic pricing power. The reading, released by the National Bureau of Statistics on Thursday, matched market forecasts and marked a fourth consecutive monthly increase, after the gauge broke a prolonged deflationary streak in March. Consumer price inflation, by contrast, slowed to 1.0% year-on-year from 1.2% in May, undershooting expectations and underscoring the two-track dynamic now defining the world’s second-largest economy.

The sharp acceleration in factory-gate prices owes much to the conflict between the US, Israel and Iran, which has disrupted energy supply chains and driven up the cost of crude oil, coal and related raw materials. Analysts in London note that the latest escalation in tensions could deliver renewed upward pressure on inflation in the near term, though they expect it to remain confined to a narrow set of sectors and to fade once energy supply normalises. A low base of comparison from a year earlier, when producer prices were still falling sharply, also amplified the annual figure. On a month-on-month basis, the PPI dipped 0.3% in June, reflecting a retreat in global oil prices after a ceasefire agreement between Washington and Tehran.

Viewed from Beijing, the data highlight the headwinds facing policymakers as they try to shore up the job market and rebalance an economy marked by excess production capacity and lacklustre household spending. While higher prices have lifted profits in some upstream and high-tech industries—including coal mining, electrical machinery and carbon-based nanomaterials—manufacturers more reliant on the home market are struggling to pass costs on to consumers. The auto sector, where sales fell for a ninth straight month in June, exemplifies the pressure: carmakers are increasingly turning to export markets to offset domestic weakness. The consumer price index edged down 0.3% month-on-month, with core inflation, which strips out volatile food and energy, rising just 1.0%, the slowest pace since January.

Economists in Hong Kong characterise the inflation picture as a shift from near-deflation to low positive territory, a level unlikely to deter the People’s Bank of China from further monetary easing should it deem such action necessary. The market regulator has meanwhile renewed a crackdown on “involution-style” price wars in sectors ranging from electric vehicles to food delivery, aiming to halt the erosion of corporate margins. The next factual milestone will be the release of China’s trade data, which will reveal whether the export boom fuelled by global AI demand continues to provide a buffer against domestic stagnation.