How does the rise in oil prices affect domestic PPI and the costs of various industries?

By estimating the impact of oil price increases on the PPI of the crude oil industry chain, we quantify its overall contribution to the domestic PPI. Regression analysis shows that a 10% year-on-year increase in oil prices will boost the domestic PPI by approximately 0.3-0.4 percentage points.

We selected five key crude oil chain industries with high PPI weightings and significant sensitivity to oil price changes (oil extraction, oil refining, chemical raw materials and chemical products manufacturing, chemical fiber manufacturing, rubber and plastics products). Regression analysis was used to determine the impact coefficient of oil price fluctuations on these industries’ PPI year-on-year. Combining the PPI weights and impact coefficients, a 10% year-on-year increase in oil prices will raise the domestic PPI by about 0.3-0.4 percentage points.

Additionally, by using input-output tables to calculate the complete consumption coefficients of each industry for oil, we can qualitatively observe how rising oil prices affect the PPI of various sub-sectors and identify the cost-side impacts of oil price increases across industries.

• Industries with high sensitivity to oil prices (large complete consumption coefficients for oil): mainly concentrated in the petroleum, chemical, and non-metal sectors, including oil, chemicals (synthetic materials, chemical raw materials, chemical fibers, pesticides, fertilizers, rubber, etc.), and non-metals (plastics, bricks and stones, graphite, glass, ceramics, etc.).

• Industries with low sensitivity to oil prices (small complete consumption coefficients for oil): mainly in the food and beverage, agricultural and sideline products, alternative energy, and technology manufacturing sectors, including food and beverages (tobacco, alcohol, tea, condiments, fermented products, dairy, convenience foods), agricultural and sideline products (meat, vegetable oil processing, sugar, feed, aquatic products), alternative energy (natural gas, electricity, coal), and technology manufacturing (specialized electronic machinery, electronic components, computer equipment, smart consumer devices, medical devices, communication equipment).

Source: Industrial Strategy Team of Xingzheng Securities, Zhang Qiyao

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