Global cost pass-through to consumer prices is currently weaker than in 2022, but stagflation risk has not disappeared

Overview

This report examines whether rising crude oil prices and the confirmation of El Niño will cause global upstream costs to pass through from producer prices to consumer prices. Nomura selects 27 major developed and emerging economies, compares the movements in PPI and CPI after the 2026 US-Iran conflict, and contrasts them with the period of the energy shock following the Russia-Ukraine war in 2022. The core conclusion is that cost pass-through this year is currently more limited and more uneven, with firms absorbing more costs through margin compression, but if energy and food shocks persist, CPI could still continue rising after a lag of several months.

Core views

The report argues that PPI typically leads CPI. In 2022, CPI inflation in the PPP-weighted aggregate of the 27 countries peaked about five months after PPI peaked; if a similar lag relationship reappears, the CPI peak in 2026 may not arrive until year-end at the earliest. However, unlike in 2022, firms this year entered the shock with healthier initial profit margins, weaker consumer demand, more limited fiscal space, and tighter monetary policy, making them less able to pass costs on quickly to consumers. In the short term, this lowers the probability of a broad CPI reacceleration; but in the medium term, if oil and food prices continue to rise and corporate margins continue to be squeezed, central banks will face a more difficult trade-off between growth and inflation.

Analysis framework

The report uses three types of methods: cross-country comparison, historical shock comparison, and lead-lag correlation analysis. First, it constructs PPP-weighted aggregates of PPI and CPI inflation for 27 economies to observe the time gap by which PPI leads CPI. Second, it compares cumulative changes in PPI and CPI after the 2026 US-Iran conflict with the corresponding paths following the Russia-Ukraine war in 2022. Third, it performs lagged correlation analysis of the PPI-CPI relationship for each country over rolling five-year windows at lags from 0 to 15 months, and combines the correlation coefficients with the latest CPI-PPI gap to identify countries with potentially higher pass-through risk.

Methodology notes

• Macro Inflation Pass-ThroughPPI-CPI Lead-Lag Analysis

  Producer-to-consumer price pass-through

  PPI measures upstream supply-chain price pressures and typically leads CPI. By comparing the time gap between the PPI peak and the CPI peak, the report assesses the pace at which cost shocks pass through to end-consumer prices.

• Cross-Country Macro ComparisonPPP-Weighted Aggregate of 27 Countries

  PPP-weighted global inflation proxy

  The report weights 27 economies by their purchasing power parity shares of world GDP, covering about 75% of global GDP on a PPP basis, to construct global PPI and CPI trends.

• Risk ScreeningRolling Five-Year PPI-CPI Correlation and CPI-PPI Gap Matrix

  Lagged pass-through risk identification

  For each country, the report calculates the maximum correlation between CPI and PPI at lags of 0 to 15 months, and combines this with the latest CPI-PPI gap; countries with high correlation and CPI significantly below PPI are viewed as having higher subsequent cost pass-through risk.

• Historical Event StudyComparison of the 2022 and 2026 Energy Shocks

  Comparison of cumulative price changes after shocks

  The report calculates cumulative changes in PPI and CPI from the average levels in January to February before and after each shock, in order to compare the strength of inflation pass-through under the energy shocks triggered by the Russia-Ukraine war and the US-Iran conflict.

Asset mapping & comparison

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

• Global rates and sovereign bonds

  Lagged CPI pass-through will affect central bank policy paths and yield expectations

  Strengths

  If pass-through remains limited, easing inflation pressure could support future easing expectations.

  Weaknesses

  If energy and food shocks persist, CPI could continue rising into year-end or next year, undermining rate-cut trades.

  Comparison

  Compared with 2022, the monetary policy starting point in 2026 is tighter, and policy response room is more constrained by the inflation-growth trade-off.

  Risks

  Rising stagflation risk, rebounding inflation expectations, and delayed central bank easing.

• Energy and commodities

  Rising oil prices are one of the core drivers of this round of PPI shock and cost pass-through risk

  Strengths

  Higher energy prices directly raise production costs and may support energy-related assets.

  Weaknesses

  If demand remains weak, firms may struggle to fully pass on costs, potentially squeezing profits in non-energy sectors.

  Comparison

  The 2022 energy shock was accompanied by post-pandemic demand and supply-chain disruptions, resulting in stronger pass-through; in 2026, pass-through is currently more limited.

  Risks

  Renewed escalation of the US-Iran conflict, continued rebound in oil prices, and El Niño-driven increases in food prices.

• Global equity markets

  Margin compression and differences in pricing power will affect earnings performance across sectors and countries

  Strengths

  Companies with strong pricing power or cost pass-through ability are better able to withstand PPI shocks.

  Weaknesses

  When consumer demand is weak, firms are more likely to absorb costs through margin compression, increasing downside earnings risk.

  Comparison

  In 2022, firms moved into a price-hike cycle more quickly; in 2026, the demand and policy backdrop does not support an equally rapid pass-through of the same magnitude.

  Risks

  Continued margin contraction, slower real consumption, and valuations pressured by high interest rates.

• Inflation-sensitive countries and currencies

  Countries with a large CPI-PPI gap and historically strong PPI-CPI correlation are more likely to see subsequent CPI increases

  Strengths

  If inflation pass-through remains controllable, monetary policy pressure is relatively lower.

  Weaknesses

  High correlation and a large negative gap imply that producer-side pressure has not yet been fully reflected in consumer prices.

  Comparison

  The report points out that economies such as Singapore, Peru, Chile, Taiwan, China, and Canada face more evident margin compression in 2026.

  Risks

  Repricing of local interest rates, pressure on real incomes, and slower consumption.

Key data

• Study sample27 major developed and emerging economiesCalculated by PPP-adjusted shares of world GDP, covering about 75% of global GDP on a PPP basis.
• 2022 PPI-to-CPI lagabout 5 monthsIn the weighted aggregate of 27 countries, CPI inflation peaked about five months after PPI inflation peaked.
• Number of countries with potential pass-through risk13Figure 4 shows that, combining high PPI-CPI correlation with a large negative CPI-PPI gap, 13 countries fall into the higher-risk zone.
• 2026 pass-through characteristicsMore limited, more unevenThe report notes that the relationship between cumulative PPI and CPI increases in 2026 is weaker than in 2022, especially in many Asian economies where rising PPI has not yet broadly translated into higher CPI.
• Policy and demand backdropWeaker consumption, higher debt, higher policy ratesIn most countries, quarter-on-quarter real private consumption growth in Q1 2026 was lower than in Q1 2022, while public debt and policy rates were higher.

Impact & implications

For asset allocation, the report suggests that markets should not ignore subsequent inflation risks simply because current CPI is relatively moderate. If oil and food prices continue rising, firms may first experience further margin compression before being forced to raise prices, meaning the macro environment could shift from pure inflation pressure to the more challenging combination of stagflation. For central banks, this implies that room for rate cuts may be limited; for equities, sectors with weak pricing power and high cost sensitivity are more vulnerable to margin compression; for bonds and currencies, inflation resilience may delay easing expectations.

Risks

• Further increases in oil prices caused by renewed escalation of the US-Iran conflict.
• El Niño intensifies and pushes up food prices.
• The PPI shock lasts longer than firms' profit margins can absorb, triggering lagged CPI pass-through.
• Weak demand, limited fiscal space, and tight monetary policy together create stronger stagflation pressure.
• Data cutoff months are not fully consistent across countries, so judgments on the latest PPI and CPI are still affected by publication lags.

What to watch

• Whether PPI reaccelerates over the coming months and forms a new peak.
• Whether CPI continues rising in H2 2026 in line with the roughly five-month lag relationship.
• Countries with a large CPI-PPI gap and high historical PPI-CPI correlation.
• Whether the gap between the manufacturing PMI output price index and input price index weakens again.
• Changes in oil prices, food prices, and the intensity of El Niño.
• Whether central banks delay rate cuts or maintain higher policy rates because of inflation resilience.