US Factory Inflation Surges Amid War
U.S. manufacturing activity remained steady in February, but a key inflation indicator is flashing red. Factory gate inflation—the cost of goods at the point of production—surged, driven by higher energy prices and supply chain issues related to the new conflict.
The recent surge in factory gate inflation is not an isolated event, but rather an escalation of ongoing price pressures. In January, the Producer Price Index for final demand had already risen 0.5%, driven by a significant jump in the cost of services. Annually, the index was up 2.9% for the 12 months ending in January. A key indicator of this trend, the Institute for Supply Management's prices paid measure for manufacturing, soared to 70.5 in February, its highest point since mid-2022. This reflects rising costs for materials and inputs, a trend that predates the latest conflict. The escalation of conflict in the Middle East has directly impacted energy markets, with oil and natural gas prices surging following disruptions to production and shipping in the Strait of Hormuz. These higher energy costs are a primary driver of the latest spike in producer prices. This comes on top of a global supply chain already strained by geopolitical fragmentation. Ongoing conflicts and trade policies have created a volatile environment for sourcing raw materials and components, with 74% of logistics managers in a 2025 survey citing geopolitics as the single greatest threat to supply chains. Manufacturers have also been contending with broad tariffs on imports. While the direct impact on overall inflation has been debated, industries have reported significantly higher business costs for specific goods like steel and aluminum. The current inflationary pressures are not expected to be short-lived. Economists project that global core inflation will remain stable at 2.8% in 2026, with U.S. inflation expected to accelerate above 3%.
