Was Yesterday's ISM an Early Warning for More Inflation Down the Road?

In addition to the Indian Central Bank's purchase of 200 tons of gold from the IMF, one reason for gold's strong rally today can be found in yesterday's ISM. In each month's Report on Business, ISM publishes the results of its monthly commodities survey where it asks respondents which commodities are rising in price and which are declining. In this month's survey, respondents saw price increases in eleven commodities and decreases in only one. This month's net reading of +10 brought the three month moving average to eleven and is the highest level since September 2008.

The chart below compares the three month average net reading in the ISM Commodities Survey (CS) with the year over year change in CPI. Over the last ten years, trends in the CS have often preceded moves in the CPI. So when the net reading in the CS rises, increases in the CPI are typically not far off. Therefore, given that the net number of commodities rising in price is currently at +10 from a low of -15 in February, don't be surprised if upcoming inflation reports come in on the high side of expectations.

click to enlarge

Comments

[TheSnail:]

Wholly crap Batman the y/y CPI could soon hit zero!!!!!!

Nov 03 04:50 PM

[Kinetics63:]

With spammers and idiots like this guy, I don't know why you guys bother posting.


On Nov 03 04:50 PM TheSnail wrote:

> Wholly crap Batman the y/y CPI could soon hit zero!!!!!!

Nov 03 07:41 PM

[JeffDB:]

On Nov 03 07:41 PM Kinetics63 wrote:

> With spammers and idiots like this guy, I don't know why you guys
> bother posting.

Yes, it's a shame. But thanks for the article and the chart. Some of us appreciate it.

Nov 04 12:25 AM

[jeremiah74:]

what TheSnail is saying - with not a little sarcasm is that when CPI is -1% its maybe a tad early to talk about 'more inflation' down the road. as there is currently no inflation. and one ISM print is not yet evidence that this is about to change

Nov 04 03:33 AM

[JeffDB:]

On Nov 04 03:33 AM jeremiah74 wrote:

> what TheSnail is saying - with not a little sarcasm is that when
> CPI is -1% its maybe a tad early to talk about 'more inflation' down
> the road. as there is currently no inflation. and one ISM print is
> not yet evidence that this is about to change

Yeah, I should have edited out the apparent allusion to TheSnail, as my complaint is with the spammer(s) above who seem so intent on infesting every thread.

I think TheSnail makes a valid point, even though I do take issue with it to some small extent. Inflation has been no roaring monster and a case can be made that we've actually had some deflation. But, I think that the the massive influx of liquidity from the Fed has had some inflationary effects already, even if they have so far been quite unevenly applied throughout the economy.

I would submit that it has had an inflationary impact on quite a few commodities, and on stocks, bonds and other financial instruments and, of course, upon things like the $700,000 bonuses / employee at Goldman Sachs. My expectation is that as that liquidity works its way through the economy it will have a much more marked inflationary effect throughout the broader economy, particularly as measured by the CPI.

But many claim the CPI significantly understates inflation anyway:

www.shadowstats.com/ar...

Nov 04 07:08 PM