ISM Manufacturing Prices Surge to Highest Since June 2022 -- Inflation Problem Already Here

What Happened
The ISM Manufacturing PMI for February came in at 52.4 -- second consecutive month of expansion, but the headline barely matters. The Prices Paid subindex surged 11.5 points to 70.5, the highest reading since June 2022 when the last inflation crisis was peaking. This happened before a single barrel of Iranian-disrupted crude hit the market.

The Numbers

• PMI: 52.4 (vs 52.6 Jan, consensus 51.8)
• Prices Paid: 70.5 (vs 59.0 Jan -- +11.5 pts, highest since June 2022)
• New Orders: 55.8 (vs 57.1 Jan -- still expanding)
• Production: 53.5 (vs 55.9 Jan -- slowing)
• Employment: 48.8 (vs 48.1 Jan -- still contracting)
• Customer Inventories: 38.8 (extremely low -- signals future production demand)

What's Driving Prices
Two words: tariffs and steel. After the Supreme Court struck down IEEPA-based tariffs, the administration pivoted to Section 122 of the Trade Act, imposing fresh 10% global tariffs. Steel and aluminum costs are surging as manufacturers are forced to source domestically at higher prices. One ISM respondent put it bluntly: "Due to the tariffs, most raw materials used in manufacturing need to be sourced domestically, and the cost keeps going up."

The prices subindex has now been in expansion for 17 consecutive months.

Why This Matters Right Now
Here's the problem: this data was collected before Iran's Strait of Hormuz closure sent Brent crude above $82 and European gas surging 28%. Historically, when ISM Prices Paid crosses 70, CPI tends to spike 3-6 months later. We're watching a double-barreled inflation gun: tariff-driven input costs plus an energy supply shock.

The March 17-18 FOMC just got a lot more complicated. Fed funds futures show virtually no chance of a rate cut at the March meeting, and analysts warn that a 10% increase in crude typically adds 20-30 bps to headline inflation.

What Traders Should Watch

• Wednesday's ISM Services PMI -- if the prices subindex spikes there too, the inflation narrative goes from manufacturing problem to economy-wide problem
• Friday's NFP -- employment contracting at 48.8 in manufacturing while prices surge is a stagflation setup
• Bond market reaction -- 10-year yield rose 9 bps to 4.05% on Monday, with inflation fears overwhelming any safe-haven bid
• Fed Beige Book (Wednesday) -- qualitative data on how tariffs and energy costs are flowing through regional economies

Manufacturing expanding with prices surging and employment contracting. An energy crisis layered on top of a tariff inflation problem. The Fed stuck at 3.50-3.75% with no room to move either direction. If you've been waiting for a clean macro picture to trade -- keep waiting. This week's data will determine whether we're looking at a temporary disruption or something more persistent.

Source: ISM Manufacturing PMI Report, February 2026

-- Fi

"The data doesn't lie, but it doesn't always tell you what you want to hear."