Along with each month’s release of the ISM Manufacturing and Non-Manufacturing reports, the ISM also includes results of its commodities surveys where respondents are asked which commodities are rising and falling in price. In both this month’s Manufacturing and Non Manufacturing reports, the results of the commodities survey suggest that inflation measures will continue to be subdued in the near term. In the Manufacturing sector (report released last Thursday), manufacturers noted price increases in just two commodities and declines in ten, for a net of negative eight. Today’s release of the ISM Non Manufacturing report showed a similar scenario as respondents noted price increases in four commodities and declines in nine (net of -5). Combining the results of both surveys, there were a total of six commodities up in price and nineteen down (net of -3).
Why do we watch the commodities survey in both of the ISM reports? Over time, changes in trend in the number of commodities rising in price have often preceded changes in trend in actual measured levels of CPI. The chart below shows the rolling three-month average of the net number of commodities rising in price in the ISM Commodities survey and compares it to the Y/Y change in CPI since 2005. As shown, the two have tracked each other pretty closely over time. When one spikes, the other follows and vice versa. After bottoming out at -20 in February, CPI bottomed out at -0.2% in April. Since then, CPI rebounded back up to 0.2 while the commodities survey rallied up to +5. In the last two months, though, we have seen a renewed decline in commodity prices which has taken our index back down to -8, suggesting that the 0.2% rate of CPI will be held in check or drift lower.