Over the last year and a half we have found that the ISM Commodities Survey has been an effective barometer of future inflation. When the number of commodities rising in price has risen, year over year CPI tends to follow in the coming months. Likewise, when the number of commodities rising in price declines, inflation has tailed off in the ensuing months.
Currently, the ISM commodities survey has indicated that the number of commodities rising in price rose from the prior reading in three out of the last four months. The last time we saw this was in December 2005, which was followed by an up-tick in inflation last Spring that sent global markets reeling. While it is not necessarily pertinent to today's report, investors should keep this on their radar in the months ahead, given the indicator's past reliability. Longer term, the ISM Commodities Survey still remains below its downtrend from the peak readings in 2004.
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