China's Producer Prices Exit Deflationary Streak Amid Middle East Energy Shock

China's producer price index (PPI) climbed 0.5% year-on-year in March, marking the first increase since September 2022 and ending the longest deflationary streak in decades. This shift comes as the ongoing conflict between the U.S. and Iran disrupts global energy supplies, specifically following the effective closure of the Strait of Hormuz to most commercial tankers. The energy shock has pushed the international benchmark Brent June contract to $96.7 per barrel, a 33% rally since the conflict began on February 28. U.S. WTI crude futures for May delivery have surged 47% compared to pre-war levels. As the world's largest oil importer, China faces significant inflationary spillovers, though its diversified energy sources and strategic stockpiling have mitigated the immediate impact. Morgan Stanley has revised China's GDP growth forecast downward by 10 basis points to 4.7%, based on the premise that oil will average $110 per barrel in the second quarter. Analysts warn that if the Middle East conflict deteriorates further and pushes oil prices above $150 per barrel, real GDP growth could slow to 4.2% this year. Domestically, the pressure is mounting as China's economic planning agency recently raised retail prices for gasoline and diesel. Meanwhile, the People's Bank of China has reaffirmed a cautious monetary easing stance, dampening market expectations for interest rate cuts this year. The 10-year government bond yield remained relatively steady at 1.814% as investors weigh the risk of input-cost shocks against overall economic growth.