China’s 10-year government bond yield rose to 1.74%, extending gains from the previous session as signs of building inflationary pressures suggested that the People’s Bank of China may have less room to ease monetary policy. Producer prices rose to 3.9% in May from 2.8% in April, marking the highest level since July 2022. This extended the rebound from China’s prolonged producer-price deflation, driven largely by higher commodity and energy costs amid the Middle East conflict. Meanwhile, consumer inflation remained elevated at 1.2% in May 2026, although slightly below market expectations of 1.3%. Although China has mitigated part of the energy shock through its strategic oil reserves and expanding renewable energy capacity, sustained input-cost pressures could squeeze corporate profit margins if firms absorb the higher costs. Alternatively, if companies pass these costs on to consumers, inflation could rise further and weigh on household purchasing power.

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