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Today's ISM Manufacturing report provided more signs that the CPI will be moving higher in the coming months. In this month's commodities survey, respondents noted increases in prices for 29 commodities and no decreases in prices. This is actually a decline from last month's total of 30, but it did move the three-month average up from 23.7 to 28.7. This is now the highest reading since April 2005.
So what does this mean for inflation? The chart below compares the three-month average of commodities rising in price to the year over year change in CPI. There is a clear correlation between the two. When the three-month average increases, CPI also rises, and when the three-month average declines, CPI soon follows.
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