Originally released in November 2022, with data now updated through January 2023. The relevance of the data remains stronger than ever.
Chart Content: Twenty-year normalized comparison of inflation (Consumer Price Index) to ISM Manufacturing Prices Paid.
Chart Significance: Inflation in the United States has historically correlated positively with the rise and drop in the prices paid for raw materials by manufacturers. The chart below depicts a 20-year snapshot of how this correlation has co-existed in harmony. There have been minor and marginal pockets of historical disparities that have been generated in the data set, but they pale in comparison to the current state. Following the fourth quarter of 2021, the immense discrepancy between prices paid by manufacturers (i.e., the producers of tangible goods) and that of actual inflation (Consumer Price Index) has skyrocketed. Geopolitical factors and notable consumer demand for both goods and services have certainly been a factor, yet it bears significance to note that the correlation breakdown is abnormal in a rather astonishing way.
Potential Forward-Looking Implications: Despite the unforeseen spike in energy prices throughout 2022, we believe the correlation in inflationary data relative to the increase/decrease in manufacturing prices paid will resume by year-end 2022. Not only is this a function of a normally operating economic environment, but it supports the concept of normalization in consumer demand for goods and services, both of which have been evident. Although geopolitical tensions will likely remain at the forefront for the foreseeable future, we do not believe that to be a dominant and objective reason for sustained upside in the Consumer Price Index (CPI).
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.
All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional location.