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Are We Seeing a Whiff of Inflation?

CNBC.com

Economists are pointing out that January's super strong ISM manufacturing reportcould be signaling early signs of inflationary pressure.

The prices paid index jumped to 81.5 from 72.5, the highest level since 2008, when oil was spiking in the mid-$140s per barrel. In November, prices paid was at 69.5.

Stephen Stanley, chief economist at Pierpont Securities, notes that the survey also indicated 30 commodities were up in price and none were lower.

"It's certainly pushing through the pipeline. The question is, as always, does it make it out the other end? The Fed has argued consistently that whatever input costs we get won't feed through to the consumer because of slack in the economy," he said.

ISM for January came in at 60.8, up from 58.5 in December and 58.2 in November. A reading above 50 indicates economic expansion. Some economists had expected the number to show a slight decline in January from December's level.

The report may also bode well for the January jobs report, due for release Friday. The employment component rose to 61.7 from 58.9 last month, the best reading since 1973. Other readings also showed solid improvement, including new orders at 67.8 from 62 and exports at 62, from 54.5.

Stanley says one area that may see pricing put to the test this spring is apparel, because of the steep rise in cotton prices. "We'll see how it plays out. Firms would like to pass cost increases along. The question is will the consumer pay it," he said.

Questions? Comments? Email us at marketinsider@cnbc.com

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