US Manufacturing Gauge Surges 10%, Threatening Inflation Relief

A key US manufacturing gauge has surged by 10% in September, reaching its highest level since May. The Institute for Supply Management's (ISM) Manufacturing Prices Paid Index jumped from 71.1 to 77.9, a one-month gain of about 9.6%. This reading above 50 signals rising prices, with near 78 indicating broad and accelerating increases.

The rise in factory input costs is particularly notable as it follows a record retail sales figure of $738 billion in August, which was 1.1% higher than July and 5.4% more than the same period last year. With consumers continuing to drive demand, companies have pricing power to pass along higher costs.

Markets are watching this trend closely, as it could impact inflation rates and interest rates set by the Federal Reserve. The Consumer Price Index (CPI) rose 3.4% from a year earlier in August, including a 0.4% increase that month alone. Core Personal Consumption Expenditures (PCE) inflation, the Fed's preferred measure, was 3.0%, exceeding its 2% target.

Households should expect goods prices to rise through the holiday season and into early 2027 as higher producer costs typically reach consumers within months. The next key readings will be the ISM's October report in November and the backlog index, which could indicate whether factories are adding capacity or working through orders.