Global Inflation Transmission Tracker : Week
A Structural Framework for Monitoring Inflation Transmission
I. Why This Framework Exists
Markets and economic data often appear contradictory. Commodities rise, production costs increase, yet inflation appears contained and equities continue to rally. These signals seem inconsistent only when viewed in isolation.
The underlying issue is timing.
Inflation does not emerge simultaneously across the economy. It begins in one layer, propagates through another, and only later becomes visible in official statistics. By the time it is reflected in CPI, much of the process has already taken place.
The GITT Tracker is designed to capture this sequence. Rather than focusing on individual indicators, it follows how pressure develops, accumulates, and moves through the system. This allows us to identify not only the presence of inflation, but also its stage and direction.
II. Important Note on Scope
While this work is titled Global Inflation Transmission Tracker (GITT), it remains a monitoring framework rather than a predetermined outcome. It is designed to track how inflation develops and propagates through the system, without assuming a specific end state.
According to International Monetary Fund baseline projections, the global economy remains relatively stable, with inflation expected to moderate and growth remaining resilient. This view assumes that financial conditions and policy tools will be sufficient to absorb recent shocks.
At the same time, this perspective is largely financial in nature and assumes that supply can respond to price signals. It does not fully incorporate the impact of physical constraints within upstream production systems.
Recent developments suggest tightening conditions across critical inputs. Energy flows have been disrupted, LNG supply remains constrained, petrochemical chains are under pressure, and fertilizer availability has tightened. These are not purely cyclical forces. They represent structural constraints that cannot be quickly resolved.
As a result, two competing paths emerge. In one, the system stabilizes and inflation moderates. In the other, pressure continues to propagate through production chains, eventually forcing broader repricing. The purpose of the tracker is to observe this process as it unfolds and to distinguish between these outcomes.
III. The Three-Layer Structure
The framework is built around three interconnected layers that reflect the stages of inflation transmission.
The Energy layer represents the origin of pressure and is captured through WTI Crude Oil, Gasoline, Diesel, Natural Gas (TTF), and LNG (JKM). Changes at this level affect nearly all economic activity and therefore serve as the initial trigger for the inflation cycle.
The Inputs layer captures how this pressure becomes embedded in production. It is represented through three composite indices: the Fertilizer Index, the Petrochemicals Index, and the Agricultural Commodities Index. At this stage, rising energy costs are transformed into broader production costs, affecting manufacturing, agriculture, and supply chains.
Within this layer, the Agricultural Commodities Index represents the later stage of the process, reflecting how rising production costs translate into higher prices for globally traded staples. It provides a real-time view of how pressure moves from production inputs into primary goods.
The FAO Agricultural Price Index reflects this process at a more aggregated and lagged level, confirming the adjustment in agricultural output pricing after it has already occurred in real time.
The Transmission layer reflects the final stage, where accumulated costs begin to appear in consumer prices and official economic data. This layer is represented by PMI Input Costs (Europe), which captures how businesses report rising costs, and Food CPI (US), Food CPI (EU), and Food CPI (Japan + Korea), which reflect the final pass-through to consumers.
Within this framework, inflation develops in stages. Costs first accumulate within production systems and primary goods markets, are then reflected in business reporting, and are ultimately transmitted to consumers.
Because these stages do not occur simultaneously, a divergence naturally emerges between production costs and consumer prices. This divergence is defined as the Pressure Gap.
The Pressure Gap reflects the difference between Input costs and CPI. It captures the accumulation of cost pressure within production systems before it is passed through to consumers.
A widening Pressure Gap indicates that costs are building within the system but have not yet been fully transmitted. A narrowing gap suggests that these pressures are being absorbed or passed through.
This concept provides a critical link between the Inputs and Transmission layers and serves as a key condition for understanding how inflation evolves from initial cost shock to final consumer pricing.
IV. Indicator Selection and Methodology
The structure of the tracker combines real-time market data with step-based macroeconomic indicators in a way that preserves both responsiveness and reliability.
Market-driven metrics, including WTI Crude Oil, Gasoline, Diesel, Natural Gas (TTF), LNG (JKM), and the composite indices within the Inputs layer, are treated as continuous variables and averaged over each reporting week. This allows the framework to capture evolving price dynamics while smoothing short-term volatility.
In contrast, macroeconomic indicators are updated only upon official release and reflect conditions with a delay. The FAO Agricultural Price Index captures aggregated pricing of agricultural output after the initial adjustment has already occurred. The PMI Input Costs (Europe) series reflects how businesses report cost pressures following changes in real-time input prices. Consumer price indices represent the final stage, where accumulated costs are transmitted to end consumers. Between releases, these indicators remain unchanged, preserving the integrity of the dataset.
All series are normalized to a common baseline, with February 2026 set equal to 100.
Within the Inputs layer, three composite indices are used to represent the structure of production systems:
- The Fertilizer Index is constructed as an equal-weight combination of urea, diammonium phosphate, and ammonia, capturing the core inputs of global agriculture.
- The Petrochemicals Index is constructed from ethylene, propylene, methanol, and naphtha, representing the feedstock chain linking energy to industrial production.
- The Agricultural Commodities Index is constructed as an equal-weight combination of wheat, corn, soybeans, soybean oil, and sugar, capturing real-time pricing dynamics of globally traded staples.
This structure ensures that each segment of the Inputs layer is represented as a consistent composite, improving comparability and reducing noise from individual series.
In addition, the framework introduces an upstream constraint signal:
- The Sulfur Index, constructed as a composite of the Brent–WTI spread, refining intensity (ULSD relative to crude), and natural gas (TTF), capturing tightening conditions within refining and chemical feedstock systems.
Unlike price-based indices, the Sulfur Index reflects system conditions rather than direct pricing and should be interpreted as a measure of upstream tightness.
The Constraint Index is then constructed as an equal-weight combination of Aluminum, a single market-based industrial-capacity signal, and the Sulfur Index:
Constraint Index = (Aluminum + Sulfur) / 2
This index captures the transition from cost transmission to physical constraint by combining upstream chemical pressure with midstream industrial capacity signals.
The FAO Agricultural Price Index reflects global prices of primary agricultural commodities, including grains, oils, dairy, meat, and sugar. It represents production-level pricing and should be interpreted as a lagging confirmation of changes already visible in real-time indicators.
The PMI Input Costs (Europe) series, published by S&P Global, reflects how businesses report cost pressures and serves as an intermediate step between production costs and consumer price transmission.
Food CPI (US) and Food CPI (EU) represent official consumer price indices, while Food CPI (Japan + Korea) is constructed as a composite basket. Together, these indicators represent the final stage of the process, capturing how accumulated cost pressures are ultimately passed through to consumers.
Together, these indicators trace the full path of inflation from the initial cost shock to final consumer pricing.
For clarity, each indicator is also classified by type:
(S) — Single metric:
A directly observed market series.
(B) — Basket:
A composite index constructed from multiple components.
(C) — Composite / Official index:
Published aggregated indices reflecting broader pricing trends with a lag.
(Lead) — Leading / survey-based indicator:
Business-reported conditions reflecting intermediate-stage pressures.
V. Baseline and Early Phases
All values are indexed to 100 = February 2026 average
Week 1 = March 1 – March 7
Energy Layer
| Metric | Region | W0 | W3 | W5 | W7 | W8 |
|---|---|---|---|---|---|---|
| WTI Crude Oil (S) | Global | 100 | 124 | 154 | 148 | 150 |
| Gasoline (S) | US | 100 | 116 | 140 | 134 | 138 |
| Diesel (S) | US | 100 | 118 | 171 | 151 | 158 |
| Natural Gas (TTF) (S) | Europe | 100 | 152 | 188 | 155 | 162 |
| LNG (JKM) (S) | Asia | 100 | 136 | 191 | 145 | 152 |
Inputs Layer
| Metric | W0 | W3 | W5 | W7 | W8 |
|---|---|---|---|---|---|
| Fertilizer Index (B) | 100 | 103 | 104 | 108 | 111 |
| Petrochemicals Index (B) | 100 | 118 | 138 | 132 | 140 |
| Agricultural Commodities Index (B) | 100 | 104 | 110 | 114 | 118 |
Constraint Signals
| Metric | W0 | W3 | W5 | W7 | W8 |
|---|---|---|---|---|---|
| Sulfur Index (B) | 100 | 114 | 123 | 141 | 148 |
| Constraint Index (B) | 100 | 111 | 119.5 | 135 | 142 |
Lagging Confirmation
| Metric | W0 | W3 | W5 | W7 | W8 |
|---|---|---|---|---|---|
| FAO Index (C) | 100 | 100 | 102.4 | 102.4 | 102.4 |
Transmission Layer
| Metric | W0 | W3 | W5 | W7 | W8 |
|---|---|---|---|---|---|
| PMI Input Costs (L) | 100 | 100 | 116 | 116 | 122 |
| Food CPI (US) (C) | 100 | 100 | 103 | 103 | 103 |
| Food CPI (EU) (C) | 100 | 100 | 103–104 | 103–104 | 103–104 |
| Food CPI (JP+KR) (B) | 100 | 100 | 103 | 103 | 103 |
VI. Structural Interpretation and System State
The process begins with an energy shock.
In the first weeks of March, a sharp move in energy markets established the initial impulse. Because energy is embedded across transportation, manufacturing, and agriculture, this immediately raised the global cost base and set the transmission process in motion.
The first response appeared in the Inputs layer, where fertilizers and petrochemicals reacted quickly, translating energy into production costs. This marked the initial phase of transmission. The pressure then continued downstream, with the Agricultural Commodities Index reflecting the next stage, as rising production costs began to impact food pricing in real time.
A decisive shift emerged after W5. Energy peaked and stabilized, but Inputs continued to rise. This divergence confirms that the system is no longer dependent on new energy shocks. The pressure is now self-sustaining within production systems, carrying forward the initial impulse.
At the same time, constraint signals strengthened materially. The Sulfur Index accelerated into W7 and remained elevated in W8, while the Constraint Index followed, rising in tandem. These are not simply price movements — they reflect tightening conditions across refining, chemical feedstocks, and industrial capacity. Importantly, these signals now sit above the Inputs layer and remain persistent, indicating that the system is transitioning from cost transmission to constraint formation.
PMI Input Costs have moved higher, confirming that businesses are now reporting these pressures. As a survey-based indicator, PMI does not capture real-time price changes but validates that cost increases have reached the operational level.
In contrast, macroeconomic indicators remain largely unchanged. The FAO Agricultural Price Index has yet to reflect the recent rise in agricultural commodities, consistent with its lagging nature. Consumer price indices show only early movement in the United States and remain broadly stable across Europe and Asia. The final stage of the process has not yet adjusted.
The Pressure Gap remains wide. Inputs and constraint signals continue to rise, while CPI remains largely flat. This gap represents accumulated cost pressure still embedded within production systems and not yet passed through to consumers.
Crucially, this gap is no longer driven by energy. It is sustained internally, reinforced by emerging physical constraints. Elevated sulfur and constraint readings indicate that the system is tightening rather than easing.
At W7–W8, this dynamic becomes decisive. Constraint signals remain elevated and continue to diverge, while CPI lags. The system has moved beyond early transmission and is now in the late transmission phase, where the remaining adjustment is concentrated in the final step — the pass-through to consumers.
VII. Decision Framework and Forward Path
The system has now moved beyond early transmission and is entering the phase where the direction of resolution becomes critical.
Two distinct paths remain possible.
The first path aligns with the baseline expectations of the International Monetary Fund. In this scenario, Energy continues to stabilize or soften, and Inputs begin to follow. Petrochemicals and fertilizers lose momentum, and the Agricultural Commodities Index stabilizes. Over time, FAO confirms this shift, and the Pressure Gap narrows through declining Input costs rather than rising consumer prices.
In this outcome, the system absorbs the shock within production. Inflation moderates without requiring a broad-based adjustment in CPI.
The second path reflects sustained structural pressure. Inputs remain elevated or continue to rise despite stable Energy. Petrochemicals and fertilizers maintain momentum, and agricultural commodities continue higher. FAO eventually confirms this trend, and the Pressure Gap remains open.
In this case, the system does not resolve internally. The adjustment is forced through the Transmission layer, with CPI rising to close the gap.
At present, the data favors the second path.
Energy has stabilized but remains elevated. Inputs continue to move higher, supported by petrochemicals and agricultural commodities. At the same time, sulfur and constraint signals remain elevated and persistent, indicating tightening conditions within upstream and industrial systems. PMI confirms that these pressures are now fully visible at the business level, while consumer prices remain largely unchanged.
This configuration indicates that the Pressure Gap is not closing. It is being maintained — and increasingly reinforced by constraint dynamics.
The critical relationship to monitor is between Inputs and constraint signals. If Inputs begin to converge lower toward Energy, stabilization becomes more likely. If constraint signals remain elevated and Inputs hold or rise, the system will continue progressing toward delayed consumer price adjustment.
The next phase of the tracker will focus on this transition.
A sustained elevation in constraint signals would confirm that the system is no longer resolving through cost normalization, but through enforced repricing — with the Pressure Gap ultimately closing at the CPI level.
VIII. Conceptual Foundations
The framework presented in this work builds on several well-established strands of economic research, integrating them into a unified structure for real-time monitoring.
Cost pass-through theory provides the foundation for understanding how input costs propagate through production systems and eventually reach consumer prices. This relationship has been extensively studied in the context of delayed and incomplete transmission from upstream prices to CPI, including research by the Federal Reserve System on inflation drivers and pricing dynamics.
The relationship between producer and consumer prices, often analyzed through the PPI–CPI differential, informs the concept of the Pressure Gap. Studies by the Bank of Canada have examined this wedge and its implications for inflation persistence, highlighting the lag between production costs and consumer price adjustment.
Research on supply chain propagation and input-output networks further supports the framework. Work by Acemoglu, Carvalho, Ozdaglar, and Tahbaz-Salehi on production networks demonstrates how shocks originating in upstream sectors can cascade through interconnected industries, amplifying and delaying their economic impact.
Recent research by the European Central Bank has emphasized the role of supply-driven inflation and the persistence of cost pressures even after initial shocks dissipate. These findings are particularly relevant in environments characterized by constrained energy systems and disrupted production capacity.
The International Monetary Fund has also contributed to this body of work through its analysis of global inflation dynamics, including the interaction between commodity prices, supply constraints, and policy responses across economies.
The framework integrates these perspectives into a multi-layer structure that distinguishes between real-time pricing, lagged confirmation, and final transmission. By combining market-based indicators with macroeconomic data, it provides a structured approach to assessing how inflation develops, accumulates, and ultimately propagates through the system.
Publications
Gasoline: The Pump Shock Nobody Is Ready For (April 23)
The Architecture of a Global Economic Crisis:
Part 2: The Hidden Layer: Petrochemicals
Part 3: When It Reaches the Real Economy
Part 5: Financial System Impact
Part 6: Early Signals: Stress Already Visible
March 15: Energy Crises – Historical Scale (open article)
March 18: Strait of Hormuz Risk: How a Middle East War Could Trigger a Global Supply Shock
March 19: RAS LAFFAN: GLOBAL ENERGY SHOCK: Part 1
March 19: Dutch TTF – Technical Forecast
March 25: Who Blinks First? The Energy War Reshaping Markets
April 3: ABU DHABI: SYSTEM STRESS EXTENDS: Part 2
Tags:
#StraitOfHormuz #MiddleEastCrisis #GlobalEconomy #SupplyChain #EnergyCrisis #OilPrices #NaturalGas #LNG #Petrochemicals #Aluminum #Fertilizers #FoodSecurity #Inflation #Stagflation #Semiconductors #Helium #Commodities #GlobalMarkets #SP500 #MarketCrash #EconomicOutlook #Geopolitics #InvestingAngles
