In each month’s ISM reports on the Manufacturing and Non-Manufacturing sectors, respondents are asked whether prices for commodities they deal with are up or down. Over time, we have found that trends in the number of commodities rising in price has tended to coincide with, or even lead, trends in inflation. In this month’s ISM Manufacturing report, respondents noted price increases in thirteen commodities and declines in two for a net of eleven. In the Non-Manufacturing sector, respondents noted increases in sixteen commodities and declines in three. On a combined basis, a total of 29 commodities were up in price, while just five were down, for a net of +24. Compared to last month’s net combined reading of +27, that represents a slight decline.
In order to smooth out month to month volatility in the ISM Commodities survey, we like to track these readings using a three-month moving average, which we have charted below along with the y/y change in CPI. Following this month’s data, the three-month moving average of the ISM Commodities survey increased from 19.3 up to 26.3, which is the highest reading since July 2014 and up sharply from levels seen just four months ago. What does this suggest about inflation? While the y/y reading in CPI has been stable right around 1.0 for the last five months, the surge in the commodities index would suggest some upside pressure for inflation readings in the coming months.