Nomura: PPI-to-CPI pass-through in 2026 is weaker than in 2022, but lagged inflation risks have not disappeared

Overview

This report examines the global cost pass-through from producer prices to consumer prices. Nomura covers 27 major developed and emerging economies, comparing the paths of PPI and CPI after the 2026 US-Iran conflict and after the 2022 Russia-Ukraine war. The core conclusion is that the pass-through from PPI to CPI has been weaker so far in 2026 than in 2022, with greater cross-country differences; however, if the PPI shock persists, further margin compression could still lead CPI to rise with a lag.

Core views

The report argues that PPI typically leads CPI, and in 2022, PPP-weighted CPI inflation across the 27 countries peaked about five months after PPI peaked. In 2026, PPI has clearly run ahead of CPI, and the aggregate CPI-PPI gap for the 27 countries turned negative in March and deteriorated further in April and May, indicating pressure on corporate margins. However, unlike in 2022, firms entered this year with healthier initial margins, consumer demand is weaker, and fiscal and monetary support is far more limited, so firms have not immediately passed through costs as aggressively as they did in 2022. The report also stresses that if oil prices rebound and El Nino causes energy and food costs to continue rising, firms' ability to absorb costs will decline, and inflation pressure may extend into next year.

Analysis framework

The report uses three comparison frameworks: first, it tracks the aggregate path of PPP-weighted PPI and CPI inflation across 27 countries to observe the lead-lag gap between PPI and CPI; second, it uses the CPI minus PPI inflation gap as a proxy for profit margins and validates margin compression with the PMI output price index minus input price index; third, it conducts rolling five-year lead-lag correlation analysis for each country and compares cumulative percentage changes in PPI and CPI across countries after the 2022 and 2026 shocks.

Methodology notes

• Macro inflation pass-throughPPI-CPI lead-lag framework

  Uses PPI as an indicator of upstream price pressure in the supply chain and observes its lagged impact on CPI.

  The report notes that in 2022, PPP-weighted CPI inflation across the 27 countries peaked about five months after PPI inflation peaked, so if the 2026 PPI shock persists, the CPI peak may be delayed until at least year-end.

• Margin pressure assessmentCPI-PPI inflation gap

  Uses CPI inflation minus PPI inflation as a proxy variable for corporate margin pressure.

  When the CPI-PPI gap turns negative, it indicates that upstream cost increases have not yet been fully passed through to end prices, and firms may be absorbing costs through margin compression.

• Country risk rankingRolling five-year lead-lag correlation analysis

  For each country, lags PPI by 0 to 15 months or the corresponding quarters to find the lag period with the highest correlation with CPI inflation.

  The report combines the highest correlation coefficient with the latest CPI-PPI gap to identify countries with higher potential cost pass-through risk.

• Event comparison2022 vs. 2026 energy shock comparison

  Compares cumulative changes in PPI and CPI across countries after the Russia-Ukraine war and the US-Iran conflict.

  For both shocks, the January-to-February average level is used as the starting point to reduce distortion from Lunar New Year timing differences in Asia.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global rates

  Lagged pass-through from PPI to CPI will affect central banks' room to cut rates and yield curve pricing.

  Strengths

  If inflation pass-through remains limited, some central banks may still have room for policy easing.

  Weaknesses

  If energy and food prices continue to rise, lagged CPI increases may delay the easing cycle.

  Comparison

  The starting point for monetary policy in 2026 is tighter than in 2022, and policy trade-offs are more constrained by growth pressure.

  Risks

  An inflation rebound could keep rates higher for longer, or worsening growth could lead the curve to reprice recession risk.

• Energy- and food-related commodities

  Oil price rebounds and El Nino are highlighted by the report as sources of upstream cost shocks.

  Strengths

  Supply shocks and geopolitical risks could support prices of related commodities.

  Weaknesses

  Weaker demand may limit the full pass-through of prices to end consumption.

  Comparison

  Compared with 2022, there is currently no equivalent degree of post-pandemic pent-up demand or loose policy support.

  Risks

  Escalation of the US-Iran conflict or worsening El Nino would amplify imported inflation.

• Corporate margins

  A negative CPI-PPI gap means firms are absorbing upstream costs and margins are being compressed.

  Strengths

  Initial margins are healthier than in 2022, providing some buffer for firms.

  Weaknesses

  If the cost shock persists, that buffer will be depleted and earnings pressure will rise.

  Comparison

  The 2022 energy shock triggered broader repricing more quickly; pass-through has been slower and more differentiated so far in 2026.

  Risks

  Industries unable to raise prices may face margin downgrades, ultimately dragging on investment and employment.

• Consumer demand

  The strength of demand determines whether firms can pass costs on to consumers.

  Strengths

  Weaker demand helps restrain immediate upside in CPI.

  Weaknesses

  Weak demand also means insufficient revenue and earnings elasticity for firms.

  Comparison

  Real private consumption growth in Q1 2026 was weaker than in Q1 2022 in most countries.

  Risks

  Rising costs combined with soft demand could create a more pronounced stagflation mix.

Key data

• Coverage27 major DM and EM economies, covering about 75% of global GDP on a PPP basisAggregate indicators are weighted by each country's PPP-adjusted share of global GDP.
• Historical lagAbout 5 monthsIn 2022, aggregate CPI inflation across the 27 countries peaked about five months after PPI inflation peaked.
• Number of countries with potential pass-through risk13In the rolling correlation and CPI-PPI gap chart, 13 countries fall into the zone of potential cost pass-through risk.
• Countries with more prominent margin pressure in 2026Singapore, Peru, Chile, Taiwan, CanadaMargin compression has been relatively more evident in these countries this year.
• Demand and policy backdropIn most countries, real private consumption growth in Q1 2026 was lower than in Q1 2022, while public debt and policy rates were higherThe report argues that this weakens firms' pricing power to pass costs on to consumers.
• Key macro riskA more stagflationary outcomeIf energy and food costs continue rising, it could create a policy dilemma of higher inflation alongside weaker growth.

Impact & implications

For investment and macro allocation, the implication of the report is that CPI not fully reflecting the PPI shock in the short term does not mean inflation risk has disappeared; rather, it may mean cost pressure is still building within corporate margins. If the shock persists, central banks will face a more difficult trade-off: on the one hand, inflation may continue rising because of lagged pass-through; on the other hand, margin compression and weak demand will drag on growth. Compared with 2022, this round is more likely to show up as corporate earnings pressure and slower growth, rather than purely demand-driven inflation.

Risks

• The US-Iran conflict escalates again, pushing oil prices further higher.
• El Nino intensifies, driving food prices higher and broadening inflation pressure.
• The PPI shock lasts longer than expected, causing CPI to rise with a lag over the coming months.
• After firms' margin buffers are exhausted, they are forced to raise prices more aggressively.
• Central banks face more difficult policy choices between high inflation and weak growth.

What to watch

• Whether global PPI re-accelerates and makes new highs in the coming months.
• Whether PPP-weighted CPI across the 27 countries peaks near year-end with an approximately five-month lag.
• Whether the CPI-PPI inflation gap continues to turn more negative or widen.
• Whether the PMI output price index minus input price index deteriorates again.
• Subsequent CPI performance in economies with greater margin pressure such as Singapore, Peru, Chile, Taiwan, and Canada.
• Changes in oil prices, food prices, and the intensity of El Nino.
• The policy rate path of major central banks and their commentary on stagflation risks.