Inflationary pressure rises again! US manufacturing industry continues to expand, ISM price index reaches a new high since 2022.

The US manufacturing sector continued to expand in February, but raw material costs surged at the fastest pace in nearly three years, with concerns about inflation heating up before the US launched airstrikes on Iran. Data released by the Institute for Supply Management (ISM) on Monday showed that the input prices index for manufacturing jumped 11.5 points to 70.5, reaching the highest level since the peak of overall inflation in 2022. The survey data was collected before the US and Israel launched airstrikes on Iran last weekend. The current conflict has almost disrupted oil tanker shipments through the Strait of Hormuz, pushing crude oil prices sharply higher and making the outlook for future cost pressures even more severe. At the same time, the ISM manufacturing activity index stayed at 52.4, marking the second consecutive month in the expansion zone, close to recent highs. New orders and production growth remain robust. Following the release of the data, US Treasury yields rose, while the S&P 500 index continued to decline. Analysts pointed out that with oil prices recording their largest single-day increase since the outbreak of the Russia-Ukraine conflict in 2022, the ISM price index may continue to remain high or even rise further in the short term. Rising energy costs have become the latest challenge facing manufacturers, and if the high trend continues, companies may be forced to pass on costs to downstream customers and consumers. Previously released producer price data showed that the cost of raw goods excluding food and energy rose by over 15% year-on-year in January, the largest increase since April 2022. Metal prices have also risen significantly this year, with industrial metals such as copper and aluminum seeing price increases, further driving up manufacturing costs. Multiple price signals combined with geopolitical risks indicate a persistent undercurrent of inflation in the US production side. Some surveyed companies pointed out that changes in tariff policies are raising procurement costs. The Trump administration's tariff measures have exacerbated fluctuations in raw material prices, and have also increased uncertainty for companies in sourcing and pricing decisions. This environment also explains why the Federal Reserve, after three consecutive rate cuts by the end of 2025, is not currently eager to further relax policy. In terms of industry structure, in February, 12 manufacturing industries achieved growth, led by the printing, textiles, and basic metals industries; while five industries such as clothing and furniture saw contraction. The supplier delivery time index rose to its highest level since May last year, reflecting bottlenecks that companies are facing in adapting to tariff and supply chain changes. The order backlogs index also rose to its highest level since May 2022, indicating that demand resilience is still present. On the employment front, the manufacturing employment index rose to 48.8, a one-year high with a slowdown in the contraction rate. Approximately one-fifth of surveyed companies reported an increase in employment for the month, the highest ratio since 2022. The US Bureau of Labor Statistics will release the February employment report this Friday, allowing the market to evaluate the further direction of the economy and inflation.