China and Japan Inflation Pick Up as Iran War Drives Energy Costs Higher

China’s inflation data is showing an early shift at the factory level, with producer prices turning positive after a long stretch of declines. Consumer inflation, though, remains relatively soft. A similar pattern is emerging in Japan, where wholesale prices are rising faster than expected. The backdrop is higher energy costs, as oil prices have climbed in recent weeks.

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Rising Oil Prices Feed Into Factory Costs Across Asia

China’s producer price index rose 0.5% in March from a year earlier. This is the first increase since 2022, according to reports. The rise ends a long period of factory-gate deflation. At the same time, consumer prices grew 1%, missing expectations and slowing down from the previous month.

Some of that move is coming from energy. Oil prices have risen sharply since the Iran conflict disrupted flows through the Strait of Hormuz, a key route for global supply. China, which relies heavily on crude imports, is starting to see those costs show up at the factory level.

Robin Xing, chief China economist at Morgan Stanley, stated,

“China fares better than its peers amid a sizable yet not extreme oil shock, given its energy fungibility and policy flexibility with low starting inflation.”

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Japan’s Price Pressures Show More Clearly

In Japan, the pass-through has been more visible. The producer price index rose 2.6% in March. This is above forecasts, based on data from the Bank of Japan. Fuel, metals, and chemical costs all contributed, and import prices also increased. BOJ Deputy Governor Ryozo Himino said,

“We will take the most appropriate monetary policy decision from the standpoint ⁠of stably achieving our 2% inflation target with an eye on the scale and length of shock, as well ​as the economic environment at the time.”

Across Asia, the pattern of inflation data is similar. Costs are rising at the producer level. But demand is still uneven. Economists have noted that this kind of cost pressure can weigh on companies, especially in China, where margins are already tight.

For policymakers, the data does not point to a clear shift yet. China is still dealing with weak demand. Meanwhile, Japan is managing more persistent price pressures. For now, the impact of higher energy costs is showing up mainly in producer prices rather than across the broader economy.

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