Manufacturing Report Screams Inflation

[via www.businessinsider.com. Thanks to Jim B. for the alert].

by Vincent Fernando, CFA and Kamelia Angelova

Today's ISM Manufacturing index result blew away expectations, hitting 59.6 vs. an expected 57. March ISM data shows the fastest U.S. manufacturing expansion since July 2004.

Yet hidden underneath the powerful headline ISM number is an even more powerful break-out by the ISM Prices sub-index, which is a component of the total ISM.

As shown by the black line below, the ISM Manufacturing Prices index jumped 8 points in March, to 75 from 67. This signals a sharp rise in inflationary pressure. According to the ISM, 17 industries reported paying higher prices on average in March and no industry reported paying lower prices.

Furthermore, as shown below by the Producer Price Index (PPI) for crude materials in orange below, a rise in the ISM Prices Index makes a rise in the PPI highly likely, as highlighted by Waverly Advisors. This means we should expect more confirmation of inflationary forces in the near future.

Which means you can pretty much put the final nail in deflation's coffin. The real threat is inflation, especially given the recent liquidity-bias of the U.S. fed, and today's ISM result has moved Ben Bernanke one step closer to pulling the trigger on interest rates.