US services sector activity slowed in September, while strong domestic demand stretched supply chains and pushed a measure of prices paid by businesses for inputs to its highest level in more than four years, suggesting inflation could remain elevated into 2027.
Complaints about higher fuel prices dominated responses to the Institute for Supply Management survey published yesterday.
The US-Israeli war with Iran has raised prices of energy and related products and led to shortages of commodities shipped through the Strait of Hormuz. Diesel prices are at record highs, hitting farmers and truckers. Economists warned that higher prices could soon spill over to other sectors and broaden inflation pressures.
Some analysts argued the rising price pressures underscored the need for the Federal Reserve to raise interest rates again this month and in December. Cooler-than-expected inflation readings for July and August as well as a sharp slowdown in nonfarm payroll growth in September, however, have reduced the chance of a rate hike at the US central bank’s October 27-28 meeting.
The ISM said its nonmanufacturing Purchasing Managers’ Index fell to a still-high 54.9 last month from 55.4 in August. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity.
Economists polled by Reuters had forecast the PMI would be largely unchanged at 55.2.
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