U.S. March PPI Preview: Inflation Reacceleration Under Oil Price Shock

The market consensus is that the March PPI will show a "broad-based" upward trend, with surging energy prices serving as the primary driver. In March, Brent crude futures surpassed $100 on March 8 for the first time since mid-2022, as shipping through the Strait of Hormuz nearly stalled due to the conflict between the U.S. and Iran.

Approximately 20% to 30% of global crude oil is transported through the Strait of Hormuz, and this supply disruption has directly pushed up upstream corporate costs. Gasoline prices surged 21.2% in a single month, while the energy component soared 12.5% year-on-year. The U.S. services price index has climbed to 70.7%, its highest level since October 2022, as businesses explicitly cited rising oil and fuel costs as the primary reason for price hikes.

The manufacturing price index surged to 78.3 in March, the highest level since June 2022. Rising prices for commodities such as steel and aluminum, compounded by tariffs, have placed immense input cost pressure on businesses.

Automobile manufacturing is highly dependent on steel, aluminum, and plastics, pushing up new vehicle prices and indirectly boosting the used-car market, where prices have hit a near three-year high. Additionally, rising fertilizer costs have kept food prices high, as the cost of living for Americans rises across the board.

The February PPI rose 3.4% year-over-year, exceeding expectations and prompting interest rate futures markets to essentially rule out a rate cut in the first half of the year, as the probability of a cut within the year briefly fell to approximately 60%.

Should the March PPI exceed 4% as expected, market expectations that the Federal Reserve will abandon rate cuts this year will be further reinforced. Fed Chair Jerome Powell previously stated that there will be no rate cuts without progress on inflation, and persistently high oil prices have already prompted some officials to discuss the possibility of rate hikes.

Chicago Fed President Austan Goolsbee warned that high oil prices triggered by the U.S.-Iran conflict could foster a "stagflationary recession," where consumption contracts while inflation rises.

According to the latest PMI data, the services employment index plummeted to 45.2% in March, the lowest level since the end of 2023, yet the new orders index surged to a two-year high of 60.6%, presenting a classic contradictory mix of "cooling employment but resilient demand."

This structure makes the Federal Reserve's policy path increasingly difficult: while weakness in services employment suggests room for rate cuts, the stubbornly high prices paid index makes policy easing nearly impossible. How the Fed handles the dual pressures of inflation and employment will likely be revealed through future data and the tone set at upcoming meetings.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.