Standard Chartered economists have revised their outlook for China's inflation, citing higher oil and commodity prices as the primary drivers of a cost-push reflation process. The bank now projects China's Consumer Price Index (CPI) inflation to reach 1.2% in 2026, up from their previous forecast of 0.6% [1]. This adjustment is largely attributed to their in-house Brent oil forecast, which has been raised to USD 85.5 per barrel for 2026, representing a 35% increase compared to the forecast for end-2025 [1]. The pass-through effect of these higher commodity prices, particularly oil, is expected to significantly impact China's inflation, especially the Producer Price Index (PPI) [1].
Signs of reflation had already begun to emerge prior to the recent oil rally, supported by rising metal prices in upstream sectors and domestic capacity management [1]. Standard Chartered now expects PPI inflation to average 0.8% in 2026, marking the end of four years of deflation. The GDP deflator is also anticipated to turn positive this year [1]. However, the economists note that risks remain two-sided due to uncertainties surrounding global demand and commodity prices [1].
The report highlights that cost-push inflation could further squeeze industrial profits if firms are unable to fully pass higher costs onto consumers [1]. Despite this, positive inflation may help unwind entrenched deflation expectations and, when combined with more active fiscal spending to boost demand, could contribute to more sustainable reflation [1].
Regarding monetary policy, Standard Chartered expects the People's Bank of China (PBoC) to maintain its accommodative stance but does not foresee further policy rate cuts in 2026, as the threshold for such action has increased in light of moderate reflation [1].
CONCLUSION
Standard Chartered's revised inflation outlook for China signals a shift towards cost-driven reflation, primarily due to higher commodity prices. While this may help alleviate deflationary pressures, it could also challenge industrial profitability. The PBoC is expected to keep policy accommodative, but further rate cuts are unlikely in 2026.