China’s consumer prices ticked up in April as the cost of crude oil rose globally due to the Iran war, official data showed on Monday.

Helped by the surging oil costs, factory gate prices also continued to show signs of recovery, rising for a second straight month after being stuck in negative territory since October 2022.

However, analysts warn deflation is still a threat for the world’s second-largest economy as prices in other sectors continue to fall and overcapacity remains a headache.

China’s consumer price index (CPI), a key measure of inflation, last month rose 1.2 percent year-on-year, data from the National Bureau of Statistics showed.

The jump was due to “changes in international crude oil prices and increased demand for holiday travel”, according to Dong Lijuan, chief NBS statistician.

Domestic gas prices rose 19.3 percent on-year, Dong said, impacted by international commodity price fluctuations.

A five-day holiday at the beginning of May also typically sees more travel and spending in the weeks preceding it.

However, last month’s CPI was still well below the government’s two percent target for the year.

The April producer price index (PPI), which measures wholesale inflation, increased by 2.8 percent on-year — up from 0.5 percent in March.

It beat a Bloomberg forecast of 1.8 percent and marked the quickest pace since July 2022, when the PPI rose by 4.2 percent on-year.

The gauge slipped into negative territory that October and did not reverse until March.

“The rise in international crude oil prices drove up prices in domestic petroleum-related sectors,” the NBS’ Dong said in a statement, listing fuel processing and manufacturing of raw materials.

But analysts warn shocks caused by oil blockages in the Middle East are temporary.

“The fallout from the Iran War pushed up inflation again in April but price pressures remain narrow in scope and aren’t likely to build into a wider reflationary impulse”, Capital Economics said in a note.

“(With) overcapacity in most sectors unresolved and domestic demand growth still sluggish, the ingredients for a sustained reflationary impulse still appear to be missing.”