Today’s CPI report for the month of April showed a smaller than expected increase resulting in a y/y increase in the headline reading of 2.2%.  That’s down 0.2 percentage points from last month and down a full half point from the multi-year high of 2.7% that we saw in February.  Whenever we look at overall inflation levels, one secondary indicator we like to look at for confirmation of the overall trend is the monthly commodity surveys in the ISM Manufacturing and Non-Manufacturing reports.  In a nutshell, these surveys ask respondents about which commodities they deal with are rising and falling in price, and usually, we have found that trends in these surveys tend to coincide or even lead the overall trend in headline inflation.  This month, though, we have seen some mixed signals.

With regards to the Manufacturing sector, in this month’s survey respondents noted price increases in 20 commodities and no declines.  While twenty is on the high side, it was the lowest monthly reading of the year.  In the Services sector, we saw a similar trend.  Overall, 16 commodities were up in price and four were down, leaving a net of 12.  Adding up the results of both surveys, the net number of commodities rising in price in April was 32, which was down from March’s five-year high of 41.

The chart below compares the three-month moving average of the net number of commodities rising in price compared to the y/y change in CPI.  At this month’s level of 36.0, the three-month moving average is at its highest level since July 2011 and has now ticked higher for the fifth straight month, which is the longest monthly streak of increases since July 2015.  As shown on the rightmost side of the chart, even as CPI has started to decelerate, the trend in commodity prices has remained higher.  This is a trend we wouldn’t expect to continue, and they should both start moving in the same direction.  Based on some of the trends we see in the individual monthly data, we would expect to see the trends in the commodities survey start to follow inflation data lower.

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ISM Commodities Survey

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