11 SEPTEMBER 2025
The chart below shows the strong link between US core CPI inflation (blue line) and the US Manufacturing ISM (red line).
The latter is a monthly survey-based indicator that measures the health of US industry. Readings above 50 signal expansion and those below 50 are consistent with a contraction.
The two readings have a high correlation with one another, but on a lagged basis. Specifically, US core CPI tends to follow what the ISM does, but on a 20-month lag.
This means we can use historic ISM readings to project how core CPI is likely to trend.
As things stand, the relatively sluggish state of the US manufacturing sector over the past couple of years (in which the ISM index has been stuck in the 47-51 range) means the near-term outlook for US core CPI inflation is relatively subdued.
It ticked up to 3.1%y/y in July, but absent any sudden resurgence in the manufacturing ISM survey, core CPI is likely to remain well below the near 7%y/y peak it reached in late 2022.
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