Inflation Pressures Heat Up Even in Services

There is still the theme that some of it is just temporary.

By Wolf Richter for WOLF STREET.

Big parts of the services sector – such as restaurants, entertainment, lodging, and travel – have been hit hard during this crisis. Other parts of the services industries – such as real estate, services related to ecommerce, transportation services, video games, streaming services, etc. – have boomed. And other segments in services have muddled through. Services account for nearly 70% of the economy. Despite the decline in overall demand for services, inflation pressures are heating up – both in terms of prices paid by service firms, and the prices they charge their customers, according to two measures for these price pressures in January.

Across the US service sector, “cost burdens soared once again, with the rate of input price inflation the fastest since the survey began in 2009, according to the IHS Markit U.S. Services PMI this morning. “And the rate of increase has now accelerated for three successive months,” it said.

“Firms largely passed on higher costs to clients through a marked rise in charges,” it said, meaning that the resistance to higher prices appears to have faded, and companies get away with raising prices without losing customers.

“Service providers recorded a steep increase in selling prices during January,” it said amid “strong client demand and a spike in input prices.”

“The rate of charge inflation was the second-quickest on record [its records going back to 2009], only slower than the peak seen in November 2020,” it said.

“Inflation therefore looks likely to be pushed higher in the near-term,” it said.

And yet, business for the services sector is not red hot.

Hiring has been slow: “Despite a faster rise in new business, a number of firms reported sufficient capacity to process incoming new work in January. As a result, companies increased workforce numbers only marginally, and at the slowest pace since July 2020.”

“The increase in outstanding business was the softest in the current seven-month sequence of expansion,” it said.

And there is still the theme that some of this inflation is just temporary, a result of the distortions during the Pandemic.

“Some of these price pressures reflect short-term supply constraints, which should ease in coming months as the recovery builds and more capacity comes online,” it said.

Also this morning, the Institute of Supply Management released its Services ISM Report On Business. It also reported surging input prices, though the pace of increase in January has slowed somewhat from the November surge, which had been the fastest in years.

The ISM’s index for prices at 64.2 was down 0.2 percentage points from December (seasonally adjusted), indicating that prices increased but at a slightly slower rate than in December.

A value above 50 indicates expansion. A value below 50 indicates contraction. The higher the value is above 50, the faster the expansion (data via YCharts):

Both PMIs here – the one from IHS Markit and the one from ISM – base their data on how executives see business conditions at their own companies. The names of the companies are not disclosed in the reports. Executives are asked if various business conditions – orders, prices, employment, etc. – are up or down in the current month compared to the prior month.

Of the 18 service industries in the ISM index, 16 reported price increases in January, compared to December, and two industries reported no change. The 16 industries that reported an increase in prices paid were in that order:

  1. Wholesale Trade
  2. Construction
  3. Agriculture, Forestry, Fishing & Hunting
  4. Retail Trade
  5. Accommodation & Food Services
  6. Mining
  7. Arts, Entertainment & Recreation
  8. Transportation & Warehousing
  9. Health Care & Social Assistance
  10. Professional, Scientific & Technical Services
  11. Public Administration
  12. Utilities
  13. Management of Companies & Support Services
  14. Other Services
  15. Finance & Insurance
  16. Educational Services.

A step or two further down the road, at the consumer level: The Consumer Price Index picks up price changes well after companies are reporting them.

The CPI for services (red line in the chart below) has increased mostly between 2% and 3% year-over-year for the last decade and has dropped during the Pandemic, as demand for many services (hotels, flights, etc.) has collapsed.

Prices of nondurable goods (green line), which include food and energy, have gyrated wildly over the years, in response to volatile commodity prices.

And the CPI for durable goods (black line), whose year-over-year increases are almost always lower than services, and have been negative thanks in part due to rampant “hedonic quality adjustments,” has begun to spike amid a historic surge in demand:

During the pandemic, the collapse of some services, including travel, has caused those prices to drop, but people’s budgets aren’t going to those services at the moment. The budgets have been redirected to purchases of goods – particularly durable goods whose prices have jumped.

The manufacturing PMIs two days ago revealed the sharpest price increases in years, input prices and selling prices, as the goods producing sector has experienced a sudden surge in demand amid shortages of components and commodities – including semiconductors – due to the sudden shifts in the economy.

What the services PMIs are telling us is that there are price pressures now building up even in services though the services sector overall is far from having recovered, and in many aspects of services, demand remains weak.

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  91 comments for “Inflation Pressures Heat Up Even in Services

  1. historicus says:

    Paging Jerome Powell

  2. Brad Tifman says:

    Price-inflation is, fiat inflation does.

  3. Wolf Richter says:

    And for your amusement, the WOLF STREET “Pickup Truck & Car Price Index.”

    In this piece, I explain the reasoning behind these hedonic quality adjustments, and what they do to the CPI for new vehicles (which is part of the CPI for durable goods); and how actual prices have skyrocketed, while the CPI for new vehicles hasn’t budged in years.

    • Jack says:

      The Dollar fall of 15% brought temporary inflation, that has now bottomed & I expect the DXY to fly past 100 soon as the markets collapse, I also believe the free money has desensitised people to price increases even more than paying with plastic & not cash. When a person sweats for their money they are sensitive to price increases, when it’s free & they are miserable from this covid they need the dopamine hit to much to think logically, Americans have lost their minds to the point they just roll over & pay stupid prices & companies are all to happy to rip them off, not to mention the debt they accumulate, normally their credit scores would have collapsed from non payments so even though rent isn’t paid for a year, mortgage isn’t paid for a year, student loans, car leases & all other forms of debt they can keep spending with their heads in the sand. You call the the weirdest economy ever, pretty accurate, with all the distortions & corruption going on right now, the denial & delusions. the mother of all crises coming, bond yield are rising rapidly, commodities too, even though I believe they will collapse also with the stock markets & yields collapse, that now inflation will be sustained these could well be signals of the end, spike then collapse, all the figures out now were born from manipulation of markets, open then close, open then close, stimulus, debt payment holidays, there is zero recovery, not in the US, UK, China or Europe, it’s all smoke & mirrors.

      • Mr Wake Up says:

        to add to Jack’s sentence –

        its all smoke & mirrors, lies and deceit

        • Joe Saba says:

          Some of these price pressures reflect short-term supply constraints
          I doubt it – just ask about SHIPPING CONTAINER COSTS and WHEN/IF they might actually get product
          if consumer would stop ordering stuff then actual PRODUCTS could get thru
          but hey – til then 20% inflation it is
          oops – sorry jerry powell did I say that
          make sure you use statistics to LIE TO US again and again

        • Joe Saba says:

          WOLF
          how actual prices have skyrocketed
          yeppir
          I just PAID huge price to get 2016 F350 with 105k on it
          $50k
          of course I use the 1 payment plan

      • RightNYer says:

        How do you figure the dollar is going to appreciate with our insane printing?

        • Jack says:

          Wait & see, when markets collapse people flood into the Dollar, I don’t class is as money printing, the Fed just swap bonds for reserves, but the Gov is spending to much with no way of paying it back, but yes people see the Dollar as a safe haven, so expect it to hit maybe 110. Hope that answers ya question.

        • qt says:

          The US Dollar is the cleanest, dirty sheet in the laundry basket. Every country is printing like crazy mofos. It’s truly a race to the bottom!

        • Putter says:

          The dollar is the reserve currency. Fiat dollars are backed by debt. When debt vaporizes, demand for dollars skyrockets. Should see DXY 120, similiar to 2001. Their will be some great opportunities, if the whole system does not flame out!

        • RightNYer says:

          Other countries, as a percentage of GDP, aren’t printing nearly as much as we are. Not to mention those places actually tax their citizens. We don’t.

          The percentage of international transactions conducted in dollars has decreased, so I guess we’ll see whether we remain the reserve currency.

    • historicus says:

      Look into flat screen tvs…
      Never understood why an item that a person buys every 8 to 10 years is a measure of how far your money goes. When the switch over from tube tvs to hyper expensive (then) flat screens happened, was it inflationary? And now that the manufacturing has become so efficient, for such an item…is that truly a measure of deflation?
      First bottle cap costs a million to make….millionth bottle cap costs less than a penny. Deflation?

      • Wolf Richter says:

        historicus,

        Your example of the switch from vacuum-tube TVs ($500) to flat-panel TVs ($5,000 at the time for a similar-size plasma TV) is a very interesting and classic example of how CPI is calculated. Those were considered two different products in the basket. And they both got cheaper over time, and they both contributed to “deflation.” So if you spent $2,500 on a plasma TV a few years after they came out, your cost was down 50% from a few years ago. That’s how it was figured. But in terms of your budget, your cost went up by a factor of 5!

        Eventually vacuum-tube TVs were phased out of the basket, and what’s left in it are flat-panel TVs for a few hundred bucks…. after something like 90% deflation from $5,000, but the jump to $5,000 never counted as inflation. It’s just the deflation from there that counted.

        This is why “cost of living increases” and “consumer price inflation” are so far apart.

        • historicus says:

          Agree and thanks for the reply

        • Dan Romig says:

          Two hundred and ninety-seven pounds. That was what my 38″ made-in-Mexico Zenith HDTV purchased in February 2002 weighed. It was also two feet deep in size. In its day, it was high-end, listed @ $2,500 and cost me two grand.

          My ten year old 50″ Panasonic plasma was also high-end (3D capable). Cost was $900. Like CRT TVs, plasma was phased out years ago. It’s still a great display technology, and is very good at staying sharp during fast moving sporting events.

          Now, the 55″ TLC 6-Series 4K ‘Mini-LED QLED’ is $700. You can pay more for other brands, but that’s pretty much the best TV for the buck.

          What is changing is the way I buy my sports to watch on TV. NBCSN, which is my go-to, is being phased out this year. NBC has Peacock, for a few bucks a month extra. ESPN has ESPN+, for a few bucks a month extra. CBS has CBS All Access, for a few bucks a month extra. This is clearly the trend for getting revenue from sports-junkies like me I reckon.

        • Dan Romig says:

          Sorry, but the tank of a TV was an RCA, not Zenith. Gotta be accurate, eh?

    • historicus says:

      Wolf..
      Rate of change charts hide the cumulative and compounding.
      Plus they often look like nothings happening…
      CPI up 2% for ten years chart……boring, sideways…flat line
      but just ripped 22% off the buying power of the dollar. Not so boring.

    • LeanFIREQueen says:

      Bought a Honda Civic for $12k cash, 2.5 years old.

      Fantastic purchase!

      Those claiming inflation honestly sound less resourceful than I am.

      • Wolf Richter says:

        2018, “clean” but with 100k miles (no biggie)? Or maybe a laundered salvage title in another state that you don’t know about, such as a flood car (biggie)? There are lots of good deals out there. It’s hard to tell what a used car is worth by just citing one number.

      • Depth Charge says:

        Kind of a silly comment considering Wolf has posted articles highlighting the record used car prices this past year.

      • NBay says:

        Can’t help but notice I have NEVER run across a person, who after buying a vehicle, didn’t get a “great” deal on it. Imagine some of the explanations for this are in Wolf’s car sales book.

        I only bought maybe a dozen bikes/cars/trucks from dealers in my life, mostly all bikes, and figure I was screwed every time. The rest were from friends (or mechanic friends who had worked on vehicle) some client was selling.

  4. Trailer Trash says:

    “Hiring has been slow”

    I remember Stagflation. It was definitely *not* the Good Ole Days.

    “in coming months as the recovery builds”

    I note with irony the word “recovery”. This is the only term allowed in the establishment press. The fact that the word “recovery” bears no resemblance to reality is strictly intentional. Any establishment journalist who dares use “recession” or “depression” will of course be cancelled. And they know it. That’s what’s known as self-censorship.

    “In an age of universal deceit, telling the truth is a revolutionary act.”

    Thank you for telling the truth, Mr Richter.

    • Depth Charge says:

      Exactly. The moment we enter the bad times it’s nothing but stories of how the good times are just around the corner, that we’re on our way to “recovery.” The media’s propaganda would make North Korea blush. The US used to be respectable. That’s gone.

  5. Xavier Caveat says:

    I went in to get a haircut & a shave a month ago to a place i’ve been going to for donkey’s years, and it was usually $20, and when settling up it’s now $35.

    1 shot deal anecdotal, but a 75% increase.

    • Dale says:

      Interesting. I had to learn to cut my own hair, and unexpectedly discovered that I vastly prefer my hair cutting skills to the ‘professionals’.

      So the cost of haircuts, for me: down 100%.

      • Wolf Richter says:

        Same here 🤣

        I did have to buy the electric clippers and attachments, at the cost of several hair cuts (as measured by the cost when I still got my hair cut), but that investment has been recouped by now.

        I’m also doing about 30 min unpaid labor for each cut, so there is an opportunity cost involved here, but it’s kind of fun, and so I don’t mind.

        And it replaces the 1.5 hours it normally took to get my hair cut, including wait times and getting there and back.

        We should have a new asset class: “Inflation-protected haircuts.”

        • Xavier Caveat says:

          Wolf,

          I’ve been too busy learning how to do self dentistry, but this idea of cutting your own hair has some merit.

      • WES says:

        One of the nicest things about cutting one’s own hair, is you get to choose the time and place!

        Been cutting my own hair for decades. Now my son cuts his own hair. He has never been to a barber!

      • JK says:

        I did the same thing once Covid hit. The gal who cut my hair closed their barbershop. So, I had these clippers I used for a cat and said what the heck. Went online and learned how to give myself a buzz cut and now doing this regularly. I sorta miss this Korean gal that cut my hair as she was cute and I like the way she massaged my head. 😂

      • Happy1 says:

        I bought a haircut card at great clips 3 years ago and loaded it with the maximum number of haircuts at $10 a piece. A haircut there is now $16. Once that card is gone, my wife and I are going to learn to cut our own hair.

    • Jack says:

      I think this is cuz companies are trying to increase prices to stay alive or recoup losses, their first easy option is raise prices until customers revolt & companies slash to compete, just first signs of companies being desperate, I believe it will pass. When a company loses a lot of revenue they first try raise prices, it always fails as they start to compete over a shrinking customer base. Next time ask the price first.

      • Depth Charge says:

        Raising prices to make up for a lack of customers and revenue is about the dumbest business move an owner could make, and they deserve to fail if they do it. What they should be doing is offering deals to get new customers in the door.

    • historicus says:

      Wait till you see what restaurants (the ones that survived) are going to charge when things approach “normal”.

      • DanR says:

        Thank goodness I’ve learned to push my Japanese rice cooker well beyond its design limits to cook better food!

      • Brady Boyd says:

        Yep, inflation is already here. We picked up 4 “small” dishes, takeout at an Asian restaurant near Seattle. These dishes weren’t some seafood like crab. Mostly noodles, rice and some soup. Anyway the bill was $63 and the food was simply awful. I mentioned these were “small dishes”. Not sure I’d even feed it to my dogs, was that bad. Once was a good restaurant, pre-pandemic. Doubt they will survive.

        • LeanFIREQueen says:

          My pad thai in Tulsa costs still the same.

          The problem with Seattle is its NIMBYs that love inflating costs of everything through artificially inflating housing costs. You are basically living in the wrong place.

        • Happy1 says:

          A decent takeout lunch is 15 bucks these days. Was 7 10 years ago.

    • Fred H says:

      Another anecdotal for you…

      Just got back from the vet, a nail trim for the ol’ girl has been $12 for the last 10 years, today it was $20.

      We know the owner well, and after lightly complaining about the price increase, he mentioned his business and every other vet (in CO) has more business than they can handle.

      • RightNYer says:

        No surprise there. People have been bored at home, so they adopted pets.

        I know at least 6 people who decided it was a good time to get the puppy they had always thought about getting.

        • Interesting, without seeing how the veternarians are doing. My well off friend uses a mobile vet, who she says is reasonable. A lot of downstream folks are not getting their pets regular checkups. Petcare may become an unaffordable luxury.

      • LeanFIREQueen says:

        Colorado is full of NIMBYs, expect them to keep on inflating the cost of everything including healthcare.

        Customers after all need to pay for workers housing costs :-)

        If you don’t like it, move to a NIMBY-free environment. It’s basically a local problem, not a federal issue.

    • David G LA says:

      It’s “donkey ears” mate

  6. Jack says:

    Well the dumb US Gov & the Fed has lost all control, the yields are rising fast, even though no inflation will materialise in my opinion, that’s the sustained kind of inflation of 2% annual, temporary inflation from bubbles in commodities when measured with demand & the real economy is not gonna last, then add 15% fall in the Dollar now going back up & I believe soon to hit 100 DXY from current 91 plus. Is the Fed that stupid allowing the relentless shorting of the Dollar & long 30Y bonds?? Insanity, bail out hedge funds to undo the QE they do monthly, just to keep the stock hyper bubble alive, do Gov believe those loaning it money will sit back as they spend on dumb policies so people can gamble on Robinhood, these people loaning the Gov money are watching their funds lose money by means of Dollar falls and bond price depreciation, the arrogance of the Gov & Fed is truly staggering. They are all trapped, have no idea what they are doing, you simply do not expect people to loan you money only to rip them off, anyway I can go on forever, they have rates now rising fast, Dollar waiting to explode higher forcing a massive short squeeze, a short squeeze in 30yr bond & a short squeeze in Volatility, if the stock back up a small amount watch all hell break lose, the Fed is quiet, they know they don’t want the blame, that’s why they are working on the retail investor crazy as the fall guy, no way in hell was it retail or wallstreetbets that caused the spike in GME, it’s been happening for months, Kodak, Hertz, I bet any money wallstreet betz is all pros, hedgefunds & wall street playing the retail clueless idiots. People should be very careful, this is another 1929, 2000 & 2008 all in one, a lot of people will suffer & most would have had zero to do with it.

  7. MiTurn says:

    Wait till the $1.9T ‘stimulus’ hits the markets. Free money = devalued US dollar.

    More ‘temporary’ inflation…

    • qt says:

      Expect to see more short squeeze and melt up events in the stawk markets. The FED has permanently put a lower ‘plateau’ on prices so it cannot go lower. It can only go higher and higher. Anyone who do not buy, will miss out and look like fool. All hail powerful FED!

      This time is different.

      /S

      • historicus says:

        Its all about the stacking of option plays going into expirations …

        certain strikes have time bombs…and once pushed past the level, triggered events occur……
        Selling volatility made a lot of people rich, but every once in a while…
        KABOOM

      • LeanFIREQueen says:

        I’m personally looking forward to the mega crash the Fed has created.

    • historicus says:

      How much of the 1.9 Trillion will be floated by Fed purchases?
      Balance sheet headed to 10 Trillion and National Debt to 30.

      Any break out yet of money going to over seas …. countries with great lobbyists?
      Every item on a bill this size should have a sponsor. Money to XYZ country? Sponsored by whom, exactly?

      And why would a government employee who hasnt missed a paycheck get a stimulus check? Vote buying, that’s why.
      All from the ability of the Fed to hide the debt bomb.

      • historicus says:

        If this bill is laden with over seas money gifting, then we have the Fed sopping up the debt floated to give away to foreign nations….

        HUH?

    • Caveman says:

      Fed prefers the term “appreciation” not inflation.

      Fed would appreciate (intended) your cooperation.

      Nope, no inflation here. Vaccines cause asset spikes, not our fault.

      $ Printer go Brrrrrrr.

      “hey Janet, we are out of ink again” JP

  8. Seneca's cliff says:

    Some of this of course is a case of supply reduced more than demand. I used to be able to choose from a dozen different brewpubs or tap houses within walking distance of my home and/or shop. Now only some of them are open (outdoors with limited hours). Us microbrew fans are still looking for a triple IPA on Draft, or the latest Hazy but our choices are more limited and we put up with higher prices to get our fix.

    • LeanFIREQueen says:

      This is part of why my choice of how to compensate for the policy of artificially inflating housing cost is through paying nothing for healthcare in the US.

      Why pay for the natural consequences of other people’s bad habits like alcohol? Let the NIMBYs pick that tab :-)

  9. hernando says:

    I don’t. Everything is insane. I posted early about putting in for a house. The tenants are refusing to move- lawyers are being hired. This could take up to 6 months so they are delisting the house. We have to move. Our landlord is divorcing and is moving into our rental. We are looking to buy or rent but there are no houses worth buying… the inventory is so scarce.

    With bottlenecks everywhere and moratoriums on rentals and forbearance- what is the truth? Businesses are shuttering all over town including services. So there are less to chose. Also, some services need supplies that have increased in price due to bottlenecks- pass on to the consumer. However I’m buying peeled prime tri tip for 6.99 lb and Prime T-bones for 9.99 lb; beer and wine is the same as it always was as is milk, eggs and all the staples.

  10. Beardawg says:

    I have noticed insurance prices on everything creeping up. These charts (like all of Wolf’s charts) are stellar.

    I think the Average Joe will start belt-tightening again soon, however, and both goods and services will level a bit – late 2021.

    • timbers says:

      Um, yah. WHY on earth hasn’t my care insurance plunged? Everyone’s driving less. Parasites they are. Bet their CEO got a fat bonus funded by me.

      • Paulo says:

        hey, we’re getting a 15% auto insurance rebate this month for last year. On three policies. Govt plan. In May our yearly premiums will be reduced now there is ‘no fault’ in place. They passed a law and took the lawyers out of the system….cheaper just to pay injury claims than to fight it out in court. What a concept.

        • timbers says:

          Better call my insurance company. I pay the entire amount each year, new year is coming up.

          Funny story….my car insurance company tried to surcharge me because they paid a claim on someone claiming I rear ended her, rather than fight it. Told me a man was witness to this rear ending. I could tell the investigator clearly did not agree with that based on his interview with me. He showed me a video of the man approaching me in my car, given to him from the lady driving the car I supposedly rear ended.

          I asked:

          “What is he holding in his hand?”

          Investigator: “A hammer.”

          Me: “Why is he approaching me and my car with a hammer?”

          Investigator: “He said he always carries a hammer.”

          When I told the insurance company I would appeal their surcharge and wanted the video their investigator showed me, they said they would remove the surcharge.

      • Petunia says:

        People who work from home are sending their pets to pet daycare for some peace and quiet. I saw one place who provides desk space for pet owners to work while their pets exercise and get pet care. It sounds nuts but the whole country is nuts.

  11. whatever says:

    Definitely seeing it in what services I am still allowed to consume. The take-out rotissery chicken place I have been going for years changed their 18 piece “family meal” at high $20s to 16 pieces for $33. I don’t begrudge him as tons of restaruants have gone out of business, and left him a big tip, like all my services these days since I am one of the lucky ones.

  12. Paulo says:

    Restaurant prices are rising, but the reason is the cost of food. Const is up, but materials are up 30-100%. Construction is our (BC) strongest sector by far.

    I don’t think it is so much about recovery, rather, there are people doing okay or the same/maybe better, and about 20% who are on the cusp of losing everything. Winners and losers. The losers are in covid affected environments and/or what I call ‘fluff retail’; businesses that exist but the products or services are not really necessary.

    I have a shirttail relative with a landscaping business. He is so busy he had to hire two more guys to keep up…and it is winter!!! This is in Victoria BC. Landscaping. It takes weeks to get a vehicle in for maintenance into any decent shop. Builders are booked for 1-2 years in advance. I just ordered some wood direct from the sawmill. They are behind. Luckily, I ordered two months in advance. I will need to order trusses for this job and I haven’t a clue what the delay will be?

    There are no available rentals where I live, and almost nothing for sale. This applies to all of Vancouver Island, (pop 1 million). Vancouver is worse.

    Really, does it matter there is no apres ski boozers, or super bowl parties at pubs? Manicure salons? Dog walking services. Candle shops? Wedding planners?

    Insurance prices are BS (I agree), but every time there are mass fires or hurricanes all rates go up as there are so few underwriters. We all pay for climate change destruction and there was billions and billions worth this year. For those in the much vaunted private plan medical system, what do you think will happen to premium rates in the next year or two? Someone will have to pay for all those refrigerator truck morgues and ventilators.

    The only costs not inflating is labour. I see manchin things the future minimum wage to be $10 something an hour instead of the $7. hmmmm, I wonder what his salary is? Perks?

    • Happy1 says:

      Health care costs for our privately insured business were about 1/3 less than normal. COVID shut down hospitals and elective care for months. For self insured businesses, this was a very good year for costs.

      Remember that COVID hospitalizations, even in the worst affected places like NY, where a few weeks of maximum utilization followed by months of decreased utilization. Costs are down everywhere in the US, even in NY.

      In our small business, 5 people out of about 100 covered lives have had COVID, which is at about average for our state. None was sick for more than a day, and 2 had no symptoms. This is the norm. The people in the hospital are overwhelmingly elderly people despite the media buzz otherwise. In our state, CO, 80% of deaths are in people over 65.

      For those insured by the big carrriers, I’m sure there will be an increase in premium and massive profits for the big carrriers as always.

      • Petunia says:

        You are smart to self insure. Most people should do it as well. Saving all those premiums pays for a lot of healthcare.

  13. “Some of these price pressures reflect short-term supply constraints, which should ease in coming months as the recovery builds and more capacity comes online,” it said.

    I take exception to the phrase: As the economy builds, because I see no evidence of a resurgence in personal incomes outside of freebies from Uncle Empty Pockets ( fight in Congress over another $1.9 Trillion is quite a spectacle), nor do I see a return to normal access to service companies for at least the next 90 days as vaccine variants vs. Bat Flu mutants do battle.

    I also do not see sufficient capacity of any supplier coming online in such an uncertain environment as many executives know all too well that spikes in demand are more important than supply-driven spikes in prices.

    As for the U.S. Dollar, the tag of the cleanest DIRTY SHIRT IN THE LAUNDRY is quite accurate, but the reality is that that status will not prevent the Dollar from depreciating via tangible assets that have retained purchasing power (wealth?) throughout thousands of years of similar manmade escapades. I think you know of what I speak. And it isn’t Bitcoin, whatever that clever scam if all about.

    • MonkeyBusiness says:

      Both Apple and Google reported blockbuster earnings. People have enough money even without the stimulus.

      • Wolf Richter says:

        MonkeyBusiness,

        Google reported blockbuster earnings because it is screwing publishers like me for ads it runs on my site. This started in March. Its revenues are from advertisers (companies that buy the ads), and its costs are publishers where it runs those ads. And it cut its costs by not paying publishers the full amount. I have no rights because I signed them away. What I can do is kick Google out, but Google controls the backbone of internet advertising, and I cannot get around Google. This is what you get with a monopolistic enterprise that throws its weight around.

        • RightNYer says:

          And that’s exactly why the political left and right should jointly rein in the powers of Google, Facebook, Amazon, Microsoft, and the others.

          At this point, they’re functioning like monopolies and should be treated as common carriers.

        • Petunia says:

          As a content provider, like the utubers, you should look into becoming part of a union. News people are unionized and so are entertainers. All you guys should start approaching the unions to protect your incomes.

  14. DR DOOM says:

    When the price of gasoline gets to $4 a gallon Americans will discover inflation everywhere. The Empire knows it has to keep sub $4 gas or the charade is up. Americans would starve themselves and their children in order to buy gasoline and booze. These are the good times. You can not do a hedonic adjustment on a gallon of gas like you can a can of soup.

    • Apple says:

      Electric cars are a thing now.

    • WES says:

      In 1983 while working in a Siberian coal mine, my construction crew drank 24/7 to escape their worker’s paradise!

      And the communist were too afraid to cut state vodka production or raise its price! Thus their Pepsi experiment!

  15. Memento mori says:

    It’s funny and sad how all commenters are trying to rationalize price increases as temporary, pandemic related etc.
    Inflation is always and everywhere a monetary phenomenon, you print more money and it will show up in prices sooner or later but in ways that one in million can’t recognize.

    • WES says:

      More interesting is the fact that as time goes on, the amount of money printing has to go up higher than before and in increasingly shorter periods of time.

      Compare the dollar amounts in 2008/ length of time to create this printed money verses the September 2020 repo blow up! Print more money and faster.

      This is what happens when you are riding a steeping exponential curve!

      • BuySome says:

        There’s no such thing as too much. Teacher says that everytime a bell rings, someone is getting their pilot wings. Don’t worry about the Klaxon screaming about engine failures. Captain Powell has nosed down and is certain that they removed the old pier from the beach days ago so the landing will be cushy soft. Stewardess Yellin is calling for an open bar to calm the passengers nerves. Welcome to Consolidated Airlines. Enjoy your flight. Got death indemnity insurance?

    • eg says:

      “Inflation is always and everywhere a monetary phenomenon”

      Your outdated monetarism is duly noted.

    • Willy2 says:

      “Inflation is always and everywhere a monetary phenomenon” (Milton Friedman)

      Sheer nonsense !!! Western parts of the US are now receiving less rain & snow than in the 1980s and 1990s. In that same part of the US also the socalled Central Valley is located. That Central Valley is a Agricultural powerhouse It produces food that is consumed in the rest of the US and Canada. But as a result of less rain (& snow) that Agricultural production in the Central Valley is shrinking. On top of that there are serious signs that groundwater in the Valley is being depleted at a serious rate.

      Another sign of how bad the situation is: In 2020 the governor of Oregon stated that in 2020 the total amount of acres of forest that were devastated by wild fires were larger than the amount of acres burned by wild fires in the previous 5 years (2015, 2016, 2017, 2018 & 2019) combined.

      Ask yourself: Did the commercial banks and the FED order Mother Nature to let it rain less ??

      https://en.wikipedia.org/wiki/Central_Valley_(California)
      https://en.wikipedia.org/wiki/Droughts_in_California

    • Willy2 says:

      “Drought in the western US”:

      https://consortiumnews.com/2020/04/20/climate-change-worsening-historic-drought-in-western-us-rivaling-worst-in-1200-years/

      (and this is NOT limited to Claifornia. Actually, in other states the situation is even worse)

    • Happy1 says:

      Inflation is always and everywhere a monetary phenomenon, said someone wise once.

  16. Haven Salon says:

    Product based businesses are the ones being favored now

  17. Art Vandalay says:

    Are precious metals(gold and silver) a good thing to own right now?

    • YuShan says:

      That’s a difficult question to answer. Consider these scenarios:

      A) Everything goes back to how it was in the past decade (moderate to low CPI inflation, low real rates, decent growth etc). In that case gold won’t do well.

      B) Disinflation. That means that the Fed remains in control. They will do yieldcurve control, pushing long rates even lower, perhaps even go for negative rates. Gold could do OK as long as real rates stay low or fall.

      C) REAL deflation (like early 1930’s). The Fed will go even more batshit crazy, directly monetise debt, etc. Also, many bankruptcies will make people worry about counterparty risk, so money will be pulled out of banks etc. Physical gold should do well in that case, because it is nobody’s liability and therefore the ultimate safe asset.

      D) Slightly above target inflation, enough for the Fed to raise rates. Here it really depends on how credible the Fed is. If they raise rates enough for people to believe that they are on top of it and real rates/ yields go up, this would be a bad scenario for gold. In that case I expect the price of gold to fall. But if they are not credible (i.e. raise 0.25% when inflation runs at 3%) gold should do well.

      E) Out of control inflation and no confidence in the Fed to arrest this. Gold will do very well.

      F) Far above target inflation and the Fed raises rates massively to get on top of this (Volcker style). Real rates will then rise, which is negative for gold. But on the other hand, counterparty risk will then increase in a massive way because much of the debt (including government debt) becomes untenable. The safety of even Treasuries will then be in doubt, because at >100% debt/GDP and massive budget deficits this can only end in default. Gold will do very well.

      In summery: gold is really a tail hedge imo. Much will depend on the response of central banks.

      Btw: silver will generally rise and fall in sympathy with gold, but it is much more volatile and has a more cyclical component to it because it is mainly an industrial metal.

      Disclosure: I have 14% of my wealth in physical gold as a tail hedge against a system collapse. I consider it a cheap “option” without expiry date.

  18. YuShan says:

    Restaurants and other services that survived will come out of this with a lot of extra debt that they somehow have to pay back. So they will raise prices. And they will get away with that because many of their competitors are bankrupt.

    Less people can afford to eat in restaurants now, but the ones who can will pay the higher prices. That should increase the CPI.

    I was also thinking about airlines. Now that we know that Zoom meetings work fine, I think business travel will be permanently lower. But business travel subsidised the economy fares. So I would expect those prices to rise too.

    But by far the biggest component in the CPI is rent/ owner equivalent rent. I don’t know how that will work out,

    • RightNYer says:

      I’ve had this argument many times, and many people insist to the death that business travel will come back 100%. I think the conference type events where it’s a 3 day networking opportunity will. The flights for 2 hour meetings? No. Especially not at the lower level.

      In this case, I expect airlines like Spirit and JetBlue which already didn’t have much business travel to do better, as their model didn’t rely as much on business travel to subsidize personal travel.

  19. As the Fed prints money, & people avoid markets,
    bank accounts grow larger.

    Should the world became less productive,
    like Venezuela, with its “tragedy of the commons”,
    & demand stays the same, America’s 27 trillion $
    debt won’t buy a loaf of bread.

    Then, politicians will have achieved their stated goal,
    & it’s tent city…

  20. Hard to pin this on wage pressure, or labor market tightness. Some of it is supply chain disruption. If there is a gap in services provided, that inflation should be offset when corporate America moves to fill the gap. Meanwhile AI research continues, by the time American workers are ready to return to work there will be a new generation of robotics. Labor market will never be as tight as it was before the virus.

  21. Yort says:

    Per Bloomberg today:

    “Rising Inflation Will Force the Fed’s Hand”

    By coming to the rescue every time in the manner it did, the Federal Reserve created the conditions for the current bubble — and the next crisis.

    That game is now over. Little noticed last week amid the copious commentary on the GameStop Corp. jollity was a data release showing the Fed’s preferred measure of consumer inflation is going up. Over the past 12 months core personal consumption expenditure rose 1.5%, higher than the 1.3% expected. Admittedly this is still low, but it’s likely to go up a lot further. The Fed is monetizing much of the government deficit; the monster amount of money that it created is finding its way out of the banking system; there are severe supply constraints in both manufacturing and services

    Rapidly rising inflation will eventually force the Fed to rein in its lax monetary policy. But it will move, by its own admission, very slowly; on my interpretation much too slowly. It’s a racing certainty that markets will be spooked much earlier than the central bank.

    • Jon says:

      Actually, I partially agree with the article. The Govt and Fed serves the rich people so social justice is not in their agenda although inflation hurts the poor people more.

  22. IronForge says:

    Yes,

    The Service Sector is On Fire.

    Take TSLA for instance. They’re a Carbon Credits Services and Green “Smugness” Lifestyle Marketing Company with several Money Losing Manufacturing Subsidiaries.

    Last Calendar Year, they made it into the S&P500. They’re Carbon Credits Revenues of 1.58B USD were Largely Responsible for their Annual Profit of 1.3B USD.

    I know I’m Trolling everyone here and Mister Richter into giving us a Breakdown of Sales and Financials of TSLA; but I wanted to give Everyone a Good Laugh with the “Carbon Credits Services” Line.

    Cheers,

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