The Institute for Supply Management said its Services PMI registered 54.9 percent in September, with the Prices Index surging to 74 percent, the highest since July 2022.
The headline reading missed expectations of 55.2, leaving growth intact but slower than forecast. Fuel, petroleum-related products, and diesel rose in price for an eighth straight month.
Middle East tensions are pushing energy prices higher, feeding directly into service providers' input costs. The Employment Index returned to expansion at 50.1 percent, barely above the line separating growth from contraction.
Two surveys disagree on growth and agree on prices
S&P Global's services measure told a very different story on activity, rising to 58.8 in September, the strongest since July 2021.
On costs, the two surveys converge. S&P Global's input cost inflation hit its highest since November 2022, driven by gas and transport.
Continuum Economics described the ISM reading as fairly stable but with prices picking up, noting the contrast with the far stronger S&P Global print.
That gap matters because the Federal Reserve watches both for signals on whether cost pressure is temporary or building.
The jobs number complicates the rate call
Capital Economics said the jump in prices paid points to headline inflation picking up again in late 2026. The same firm reads the ISM services index as consistent with GDP growth of ~2.5% in the third quarter.
"Headline inflation will pick up again in late 2026."
Thomas Ryan, Capital Economics
Traders initially read the prices data as raising odds of a December rate hike. The labor market points the other way. September payrolls added just 29K jobs, sharply lowering the probability of an October hike.
Wage growth of 3% year over year gives policymakers room to argue that services inflation reflects energy costs rather than an overheating economy.
That split leaves the Fed weighing a four-year high in service-sector input costs against the weakest hiring stretch of the cycle.
For you, the practical read is that cost pressure is concentrated in fuel and transport, two inputs the Fed cannot control with rates. If oil stays elevated through the fourth quarter, the December meeting becomes the live one, and the October decision looks close to settled.
