For several months now, we have been highlighting the commodity survey within the monthly ISM Manufacturing Report which asks respondents what commodities are rising in price and what commodities are falling. In the past, peaks and troughs in this survey have been pretty reliable forecasters of the direction of inflation (see the chart below).
In this month's survey, on a net basis, six commodities saw price declines which is the first negative reading since 2002. When we first began highlighting this survey earlier in the year, we argued that the downtrend in the number of commodities rising in price would likely lead to a decline in inflation. Now that inflation has in fact declined, future readings in the ISM survey will be even more important, as market watchers look for clues as to how hard or soft the economy's landing will be.