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Using PMI™ indices to gauge general price trends
 
The PMI™ survey tracks two measures of manufacturers’ prices: their buying (input) prices and the prices that they charge for their goods (output prices). Both are presented as indices where a level of 50 represents no change on the previous month. A reading above 50 signals an increase in prices on the previous month and a reading below 50 signals a decrease.

These data therefore provide a general overview of manufacturers’ price trends. They also provide signals as to how prices are moving in your sector, your suppliers’ sectors and your customers’ sectors, and can be compared against your own price trends.

One interesting aspect is to compare growth of input prices (costs) with selling prices. The difference between these two series will give an idea of profit margins. For example, rapid growth of input prices in 2004 in the Eurozone occurred at a time when manufacturers’ pricing power was weak, meaning selling prices rose at a far lower pace than input prices.


Looking at the differential between input prices and output prices for your supplier or customer sectors can provide you with useful information for negotiating and anticipating problems.

* readings above 50 signal higher prices than a month ago, readings below 50 signal lower prices.
Survey respondents list specific items that have risen or fallen in price each month, and those that have fallen in short supply. These listings – shown in the monthly reports – can help buyers and suppliers of goods see how other companies have experienced price and supply trends in recent months.

For example, the report listings (see example below) might show that copper tube has been reported as lower in price by purchasing managers for several consecutive months, so you would want to question any price rises for copper tube that your suppliers may try to negotiate. On the other hand, as a supplier of copper tube, you can expect purchasing managers to try to negotiate a lower price next time they seek a quote from you.



The Markit Economics panel members’ website also includes historical analysis of how purchasing managers have reported price trends for certain key items, as shown by the example below.
 
 
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