Prices Surge: Input Costs Hit Highest Levels Since 2022

The U.S. manufacturing sector is navigating a volatile "double shock" as the first quarter of 2026 unfolds. According to the latest Institute for Supply Management (ISM) Manufacturing PMI report released on March 2, factory activity expanded for the second consecutive month, registering 52.4%. However, the report’s most alarming metric was a massive 11.5-percentage point surge in the Prices Index, which hit 70.5%—its highest reading since June 2022.

This sudden spike in input costs reflects a perfect storm of geopolitical escalation in the Middle East and ongoing domestic tariff instability.

Inflationary Pressures and Geopolitical Turmoil

The February data, collected largely before the weekend’s U.S.-Israeli strikes against Iranian military infrastructure, already showed manufacturers struggling with rising costs for steel, aluminum, and chemical products. The subsequent escalation and the closure of the Strait of Hormuz by the Islamic Revolutionary Guard Corps have sent crude oil prices soaring more than 12%, with Brent crude trading between $80 and $90 per barrel.

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, noted that the price index's jump was the "biggest alarm" in the report. Manufacturers are increasingly reporting "unsupported tariff claims" from suppliers and precautionary pricing behavior. The energy shock following the Middle East strikes is expected to push these costs even higher in the March report, as transportation and raw material procurement become exponentially more expensive.

Tariff Uncertainty and the Supreme Court Ruling

Adding to the complexity is a fractured trade landscape. On February 20, 2026, the Supreme Court ruled that the administration's use of the International Emergency Economic Powers Act (IEEPA) to implement sweeping tariffs was unlawful. In a rapid strategic pivot, the administration replaced those duties with a 10% global tariff under Section 122 of the Trade Act of 1974.

This "tariff transmission lag"—where the costs of previous trade disputes meet new, aggressive levies—has hit factory floors just as supply chains were beginning to stabilize. For industries such as machinery and transportation equipment, these shifts have forced a move toward domestic sourcing, which in turn has driven up the price of U.S.-produced commodities like steel to some of the highest levels in the world.

Resilient Demand Amid Logistics Headwinds

Despite the price surge, demand indicators remain surprisingly resilient. New orders expanded for the second straight month, and the Backlog of Orders Index reached 56.6%, its highest point since May 2022. This suggests that while costs are rising, the underlying appetite for manufactured goods—particularly in the computer, electronic, and chemical sectors—remains strong.

However, the Supplier Deliveries Index rose to 55.1%, indicating that lead times are lengthening as producers navigate both extreme weather disruptions and maritime delays. Many manufacturing executives are choosing to manage headcounts carefully rather than filling open roles, with the Employment Index remaining in contraction territory at 48.8%.

Strategic Takeaways for the Supply Chain

The current environment underscores the necessity for what ISM leadership calls "worst-case scenario planning." For the retail and supply chain ecosystem in Bentonville and beyond, the surge in the Prices Index is a clear signal that the era of disinflation has faced a significant setback.

Leaders must now "risk-rate" their categories, identifying where supply chains are most vulnerable to energy spikes or trade policy shifts. As the 10-year Treasury yield reacts to these inflationary signals, the prospect of Federal Reserve rate cuts in 2026 has dimmed, making capital management and margin protection more critical than ever.