Businesses across industries and stages of production are grappling with soaring costs, especially for energy and related inputs

Given rising global commodity prices, businesses operating in the US should expect input cost increases to accelerate further in Q2, and for high costs to persist through the end of the year. Despite the US’s high extractive and productive capacity and its relative insulation from spillovers from the war in Ukraine, businesses in the US will still see higher costs. Continue to monitor US producer price index data for insights into pricing trends across commodity inputs, industries, and stages of production.

Overview

Input cost inflation for businesses in the US, as measured by the producer price indexes published by the Bureau of Labor Statistics, continues to hold near historic highs. Most of the increase in input prices stems from the rising cost of processed and unprocessed goods, as well as construction costs.

Overall, input prices for processed goods were up 23.2% on the year in February, while inflation for unprocessed goods (commodities) was at 35.1% YOY, and construction costs were up 11.5% YOY. Service inflation was at 7.4%, with most of the price increase stemming from increased costs of transportation, freight, and cargo. For all four categories of inputs, cost inflation was at or close to historic highs.

Our View

Since 2020, business input costs in the US are closely linked with international commodity prices. Since the war in Ukraine stoked major commodity price increases, input cost inflation for businesses operating in the US is set to accelerate further for at least the next quarter, and costs will likely remain near historic highs through the end of 2022. Compared to Europe, Asia, and the Middle East, the US is less exposed to a decline in commodity exports from Russia—but cost inflation is still set to rise in line with a global commodity price surge.

For example, input price inflation for processed fats and oils has accelerated since late 2020, consistent with a global surge in prices for vegetable oils. Market prices for vegetable oils have jumped even further since Russia’s invasion because of disruptions to Ukrainian exports of sunflower oil. Input cost inflation will almost certainly rise further in Q2. Although wheat costs have stabilized since November, a recent surge in the benchmark price of wheat points to higher input prices for US businesses in the near term.

Rising energy prices are most responsible for the overall increase in business costs, primarily due to the surge in the global benchmark price of oil as well as higher natural gas prices. As a result, cost inflation for commercial and industrial natural gas, commercial and industrial electric power, gasoline, jet fuel, and other energy commodities jumped considerably in the last year. Costs of energy-intensive processed goods inputs, such as plastic packaging, adhesives, and aluminum mill products, are likewise historically elevated. As the WTI oil price and natural gas prices globally are seeing renewed upward pressure from the war in Ukraine, costs of energy and energy-intensive inputs are set to rise further.

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