The inflationary effects of war
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How is the recent Middle East war already affecting inflation readings?
Unless and until the war tells us otherwise, inflation is our through line this week. From American Public Media, this is Market Plan.
In Los Angeles, I'm Kai Risdahl. It is Monday, today, 6 April. Good as it always is. Have you along, everybody. As we sit here to start the week, news of the war and its economic ripples. is calm threats of course bluster but nothing tangible yet so we are going to stick with what we know and what we know so far is that inflation is going to be a key economic talking point the next four days gas prices yes oil up a bit again today two key price measures coming in the next couple of days the personal consumption expenditures price index pce in the But we start today with one of those economic ripples, the Institute for Supply Management's Purchasing Managers Index. It's the prices businesses pay, services sector businesses in particular, the prices they are paying for what they need.
Those prices shot up 7.7 percentage points in March. That is the biggest monthly increase since 2012. Marketplace's Mitchell Hartman starts us off.
Today's report on the service industry followed another one last week covering manufacturing. Dan North at credit insurer Allianz Trade says these private sector ISM reports are really important for gauging inflationary pressures in near real time.
It is the most up-to-date data. The government data, such as CPI, is at least a month behind.
And what does the ISM data show?
Prices have gone up pretty sharply, especially in manufacturing, up 19% in two months.
Jay Hatfield at Infrastructure Capital Advisors explains the mechanism.
Increases in oil prices translate into increases in gasoline, but also, importantly, diesel prices. because diesel prices really filter into everything.
It's what Hatfield calls the bleed-through effect, as the cost of producing goods and moving goods and people goes up.
Food is about 40% energy, but it also shows up in airline prices, transportation, because of the diesel increase.
Surcharges for diesel fuel are now being passed along the supply chain. to businesses and ultimately consumers. It's not only oil prices driving higher inflation, says Mark Zandi, chief economist at Moody's Analytics.
There's a bunch of stuff juicing up inflationary pressures. I mean, obviously there's the tariffs that continues to pass through. That's not over.
But that's been a slow burn as businesses held off on raising prices amid all the policy uncertainty. Zandi says the inflation effect of higher crude oil has been almost immediate. Later this week, we'll get the Consumer Price Index for March and the PCE Price Index for February. Zandi says based on all the data we have to date...
It looks like inflation right now is 3% year over year. And just for context, the Fed wants 2%. Even if the war came to an end relatively soon, by this summer, we're looking at three and a half to four.
So I'd buckle up. For a bumpy ride with no more Fed rate cuts on the horizon this year, I'm Mitchell Hartman for Marketplace.
Buckling up indeed. Wall Street today, oil traders do seem to be able to read the room. Equities traders, Less so. We'll have the details when we do the numbers.
I don't know if you saw this the other day, Thursday last week, I guess it was, but the president of South Korea in a speech to parliament called on South Koreans to, and this is a quote, by the way, save every drop of fuel. That's how tightly the war in the Middle East has squeezed the planet's oil supply. And it's another reminder. not obviously that we needed it, but oil trades in a global market. And governments everywhere are doing different things to help control consumer costs. France and South Korea have imposed temporary price caps on gasoline, just for instance. Marketplace's Kristen Schwab has more along those lines.
Most countries are feeling the pain of high oil prices, but Europe and Asia rely most on shipments through the Strait of Hormuz. Adyam Surovic is a senior fellow at the Center for Strategic and International Studies.
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Chapters
4 chapters
1
How is the recent Middle East war already affecting inflation readings?
0:02–6:18
2
What did the ISM services and manufacturing indices reveal about price pressures in March?
6:18–11:01
3
How do oil and diesel price increases 'bleed through' into food and transportation costs?
11:01–23:15
4
Why might governments avoid or impose oil price caps and what are the risks?
23:15–25:20