US Services Inflation Hits 4-Year High as War Fuels Price Spike

Inflation pressures for American services firms hit a four-year high in March as the war in Iran drove up energy costs, according to a survey from the Institute for Supply Management that points to a broadening of price pressures. The ISM’s services prices paid index surged to 70.7, its highest since 2022.

“The war in Iran has added an additional layer of uncertainty on top of an already shaky macroeconomic climate,” a real-estate industry manager told the survey. “A spike in inflation due to higher oil prices will reduce purchasing power, affecting every industry.”

While the main services index eased to 54 from 56.1 in February, missing the 55 consensus estimate, the details showed a sharp divergence. The prices paid component’s jump from 63 a month earlier marked its largest one-month increase in 13 years. In contrast, the employment index flipped into contraction, falling to 45.2 from 51.8. New business did show momentum, with the new orders index rising to 60.6.

The report intensifies focus on the upcoming March Consumer Price Index data, due Friday, for which economists are now forecasting a significant surge. The ISM data suggests the energy shock is no longer contained, raising questions about the Federal Reserve's ability to consider interest rate cuts if such price pressures prove persistent. Economists are vigilant for signs that energy-price increases are spreading into other industries.

The US Dollar remained under fresh selling pressure following the release. The US Dollar Index (DXY) breached below the key 100.00 support to hit new two-day lows. The EUR/USD pair traded 0.25% higher around 1.1544, holding between a descending resistance trend line from 1.1666 and an ascending support line from 1.1408. A daily close above the 20-day Exponential Moving Average near 1.1566 could open the way toward the March high at 1.1667.

The inflation picture is also being watched globally. Inflation data from China on Friday is expected to show producer prices posting their first annual gain since 2022. Analysts at Citi estimate that a 10 percent rise in oil prices could eventually feed through to a 1.15 percentage point rise in China’s producer price index, a development that could have far-reaching effects for the world's biggest supplier of manufactured goods.

This article is for informational purposes only and does not constitute investment advice.