Companies See “Sticky” Inflation in July in Services, as they Pass on Surging Input Costs, Including Higher Wages

Inflation in goods has abated, but it remains hot in services: US companies.

By Wolf Richter for WOLF STREET.

The message about “sticky” inflation in services, as seen from the companies’ point of view, was the most interesting element in the S&P Global Flash US Composite PMI for July, released today. It was another item on a long list of items that document inflation in services isn’t just vanishing.

From the companies’ point of view, inflation exists in two forms: their input costs, which include wages; and charge inflation, the prices they can charge their customers. And for services companies both are hot.

The PMI is based on surveys of executives of 800 companies in the US that answer the same questions about their own company every month, whether their own production, input costs, prices charged, etc. were higher, unchanged, or lower than in the prior month. A value of 50 in these indices means that an equal number of executives said that a metric was higher and lower, with the remainder saying it was unchanged. Above 50 means growth, below 50 means contraction. So this is the view of executives about what their own companies are experiencing.

Overall the Flash PMI Composite Output Index, at 52.0, pointed at growth in July, with the Flash Services Business Activity Index at 52.4 and the Flash Manufacturing Output Index at 50.2 (barely growth). “US companies signaled a further rise in business activity during July, with the service sector continuing to drive growth,” the report said. And so the services sector also continued to drive inflation.

For the manufacturing sector, input and output inflation were muted: “Although manufacturers saw a renewed rise in costs, the rate of inflation was only slight,” it said. “Goods producers noted little change in selling prices, with the rate of inflation the joint-slowest in the current 38-month sequence of increase.”

And this “slight” inflation in goods has cropped up in all kinds of other data: inflation in goods has largely abated, and this has been documented also by the Consumer Price Index and the PCE price index.

But for the services sector, it was a different story. “Service providers recorded an elevated pace of increase in operating expenses, with wage costs the main driver behind inflation amid greater challenges to retain staff,” the report said.

These are the costs of service providers, and they’re able to pass on those costs. The “Core Services” CPI was up 6.2% from a year ago, and the “Core Services” PCE Price Index was stuck at 5.4%. So here we go, about companies passing on their services input inflation to their customers:

“The rate of output charge inflation meanwhile picked up in July. Firms sought to pass through higher costs and increased interest rate payments to customers, with the overall rise driven by service providers,” the report said.

“The pace of increase at services firms was steeper than the long-run series average,” it said.

“Sticky inflation” is what the report called this situation in services, adding that the “stickiness of price pressures meanwhile remains a major concern.”

Which is precisely what other data have been saying: Inflation has become entrenched in services. On the input side, we saw this very broadly in labor market data, and it’s what the Fed has been fretting loudly about. So the triumphant announcements that inflation has been “vanquished” because energy prices have plunged from their highs a year ago, and because prices of goods have stabilized may have been a tad premature. Big inflation in services cannot be easily vanquished, as we’re finding out all over again.

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  124 comments for “Companies See “Sticky” Inflation in July in Services, as they Pass on Surging Input Costs, Including Higher Wages

  1. All Good Here Mate says:

    “For the manufacturing sector, input and output inflation were muted: “Although manufacturers saw a renewed rise in costs, the rate of inflation was only slight,” it said.

    I actually saw this for the first time in almost 3-years today. I buy a product for work we use that was $62 per jug in 2019. Last time I ordered in Jan 23 it was $120 per jug.

    Email the rep today for a quote and it’s $105 per jug. I called to ask if this price is going to stick a while and he said, “maybe”. What blew my mind is that the product price has gone down but the surging expense is the plastic bottle and especially the plastic cap. There’s nothing extraordinary about either one.

    • Toby says:

      most of the input costs are probably energy. Plastic itself aswell as the melting/ pressing/ shaping.

  2. Thomas Curtis says:

    Thanks Wolf, especially for the explanation of how PMI is arrived at.

    Also positive 120 year old Dow Theory recently flashed a buy signal:

    Dow Jones Transportation Average to new 52-week highs last week, confirming the broader rally in the Dow Jones Industrial Average.

    “The breakout on both indices checks the box for one of the key tenets of Dow Theory—the averages must confirm each other,” he said.

    My core commodity dividend companies seem to be in agreement.

    • Einhal says:

      It feels more like a blow off top to me. These stock valuations are absolutely obscene given that interest rates are at 5.25% now. The only way these valuations make sense is if the Fed drops back to zero within 6-8 months, which it won’t.

      It’s irrational exuberance. It’s not a buy signal, at least not to me.

      • Thomas Curtis says:

        You are right, high tech has been pulling back for the last week after a heck of run!!! All of the AI I guess.

        My lowly dividend paying mining and energy stocks have been doing well for the last 4-5 weeks. It’s safe dividends and modest growth that interests me… I don’t have the knowledge for high tech.

        Also, there may be a bit of sector rotation out of high tech because many economies seem to be stabilizing and starting to grow again.

        Maybe the world economy(s) is beginning the process of knitting itself back together. If so this is a good time to be in the market.

        • Bobber says:

          The world economy may be knitting itself together, but the progress relies on artificial support, including continuing US deficits of $2T per year and an expanding Fed balance sheet.

          It all comes down to whether the Fed acts responsibly, or decides to kick-the-can, again.

        • Thomas Curtis says:


          “The world economy may be knitting itself together, but the progress relies on artificial support, including continuing US deficits of $2T per year and an expanding Fed balance sheet.”

          I wouldn’t argue with that but I can’t do anything about that. So, I try to beat inflation and get a little more.

          Last year, January of 22, I was pulling my hair out with CPI inflation was over 9%. Then I went short and rode the ‘short tiger’ on major index ETFs and stayed between 100 and 200% (the fed limit) short for most of 2022. I had a great year but it was no fun.

          I would just as soon collect dividends in sane world.

        • Einhal says:

          Yes, but I think his point is that the Fed must not only stop QT, but resume QE, or the increasing debt no longer works. I guess we’ll see.

        • Thomas Curtis says:


          “Yes, but I think his point is that the Fed must not only stop QT, but resume QE, or the increasing debt no longer works. I guess we’ll see.”

          As long as employment is strong and inflation is coming down even a little bit there will be no QE.

          If employment fell dramatically they would reduce rates but still not due QE. QE is too destabilizing.

          We may be decades or more from ever seeing QE again.

          I actually think we are heading toward long bonds at ~6% and inflation at 3%.

          We will have a government debt problem that require both sides of the isle to fix.

      • Z33 says:

        The dot com NASDAQ bubble had its blow off top in March 2000 (5k) while the Fed continued to hike rates steadily from Jan 1999 through end of 2000. Nothing new to have stocks rally very high while Fed hiking.

      • Harry Houndstooth says:

        Wolf Richter has certainly made the case for another rate hike.

    • Arnold says:

      What does the Dow Theory say about the USP strike next week?

      • Thomas Curtis says:

        I don’t know how much UPS would affect the Transports but not a great deal.

        I saw an article where somebody said the strike could drive us into recession and I thought that was total nonsense.

        Now, shut down all of the railroads and you would have real trouble but we haven’t had a strike of that magnitude in decades, probably since the 1950’s.

        The railroads are REAL transports!!!

        Order your stuff off Amazon for a few weeks and you will survive this UPS calamity, har har har! 😁

        • Hubberts Curve says:

          The big deal with a UPS strike is not retail consumers, it is business to business. A lot of just in time delivery of small parts, tooling, repair parts and even material for quick turnaround comes via UPS. Yes there is FedEx as an alternative but from my experience they are maxed out and have trouble delivery the business they have on time. And no getting the kinds of things I am thinking of on Amazon is not possible.

        • Thomas Curtis says:

          Hubberts Curve

          “The big deal with a UPS strike is not retail consumers, it is business to business. A lot of just in time delivery of small parts, tooling, repair parts and even material for quick turnaround comes via UPS. Yes there is FedEx”

          UPS business customers have seen this coming longer than we have. They are adapting and setting up with other shippers, pre-stocking, rental trucks, and so on. Their cost will go up some but it will not be a large factor and it won’t last long.

          I don’t understand the economic negativity that is so common in this forum. The time to be upset about the economy was during the Fall of 2021 and into the Spring and Summer of 2022. Now we are well into the healing and the larger probability going forward is that the healing will continue.

        • Einhal says:

          Thomas Curtis, out of control inflation does cause, and always has caused, people to feel economic negativity. It doesn’t have to be Argentina/Turkey levels.

          Nobody is going to feel good about an economy where prices are increasing 5-6% every year. That’s not “healing.” There was never anything to heal from, as the massive stimulus from 2020 and 2021 led to a situation where there was really no pain for anyone.

        • Thomas Curtis says:


          “Thomas Curtis, out of control inflation does cause, and always has caused, people to feel economic negativity. It doesn’t have to be Argentina/Turkey levels.

          Nobody is going to feel good about an economy where prices are increasing 5-6% every year. That’s not “healing.” There was never anything to heal from, as the massive stimulus from 2020 and 2021 led to a situation where there was really no pain for anyone.”


          Inflation is not out of control. It is down about half from its peak in December of 2021 and jobs have remained strong. The economy is strong. Historically that is damned good, almost unprecedented!!!

          I am thinking you didn’t live through the 70s and the up and down inflation of 7, 8, even 14% and four recessions. This is a piece of cake in comparison to that awful mess.

          I was really worried in January 22 and all through into the Summer but the FED has gotten us a long way out of that mess and without a recession! I am impressed!

          I was BIG short BEAR in 2022 and did very well! My best year ever.

          Now I am a fairly happy bull, up 15% in the last two months, and pretty darn hopeful.

          You have to go with what the market gives you and the FED by any historical measure has blessed us.

        • Einhal says:

          Thomas, do you really believe this? Do you really believe that 5-6% inflation on top of 15-20% accrued inflation does not constitute “out of control inflation?” Do you really believe that the Fed has given us a soft landing? Right now, we’ve had no landing.

          To answer your question, no, I did not live through the 70s, because I wasn’t born until 1986.

        • JimL says:


          Isn’t “accrued inflation” just offset by time? That inflation was 9% a year ago doesn’t matter when I am making spending decisions today. Future inflation matters more than “accrued inflation”.

          Do you drive your car by looking in the rear view mirror?

        • Not an unusual event says:


          Your perspective is not wide enough.

          Home prices up 2020-2021 approximately 40% nationwide.
          Historical price increases.

          But nevermind that…let’s go back 3 years from BEFORE THAT.

          Its 2017 or so. I’m reading about an apartment complex in Bellingham WA.
          (I have never lived there but have lived in WA state 27 years).
          New management. They jack rent for a 2 BR from $1050 to $1500. Sure $1050 in Belle was a good price, but a 43% increase at once … some very nasty comments by the tenants regarding the new ownership. Many intended to leave.

          You may have zero sympathy… but what if someone just moved in ?

          Wolf or others may chime in about many rents being over 2k today.
          Just the facts eh ?

          This in 2017, not 2023 or close to it. Rents have unfortunately gone up 50 to 100% since then location dependent.
          It was a 43% slap in the face. Period.

          Bottom line: tenants were very very pissed off. Piss enough people off and you will have social upheaval and smiles will be wiped off the faces of the middle and upper middle classes.
          Off all of them.

    • andy says:

      What are you buying on said buy signal?

      • Thomas Curtis says:


        My investing and trading is mostly in A-Rated (by Schwab) 4-6% dividend paying natural resource extraction companies (miners and carbon energy). Most of my trading will be with the energy. I am buying and holding large miners and intending to trade them only for tax reasons.

        I believe mining metals and minerals is a long term growth industry (it also has a long history of dividends). Because of the energy transition, the ongoing China build out, India’s effort at building out, Mexicos efforts at building out, and everybody in the world’s efforts at building out (and having what we in the ‘rich West’ take for granted) mining will grow for decades to come until Elon Musk starts parking asteroids in orbit and refining them with the sun.

        Carbon energy which flies in the face of the ‘energy transition’ is going to be needed for a long and hopefully diminishing length of time. It also supplies good dividends. It will be ever more volatile as we use less. Traders benefit from volitility. I am getting to know a few (3-6) quality carbon energy companies so I can better trade them.

        That’s about it for my get old and have something strategy.

        • MM says:

          “4-6% dividend paying natural resource extraction companies”

          What’s the appeal of this trade when you can earn the same rate of return on risk-free T-bills?

        • Einhal says:

          MM, nothing, unless you’re confident that rates will be down to zero next year. That, or you’re convinced prices will keep rising, and you’ll always have a greater fool,

        • Thomas Curtis says:

          Jul 25, 2023 at 10:10 am
          “4-6% dividend paying natural resource extraction companies”

          What’s the appeal of this trade when you can earn the same rate of return on risk-free T-bills?

          Jul 25, 2023 at 10:13 am
          MM, nothing, unless you’re confident that rates will be down to zero next year. That, or you’re convinced prices will keep rising, and you’ll always have a greater fool,”
          MM and Einhal, the attraction is beating inflation over the long haul in a safe investment, a basket of large very experienced miners. Even after inflation is again 3% I will still be getting 4-6% dividends and you will be getting 1% and I will also be getting stock price appreciation. I have explained why I believe miners are in a long term bull market which will give them pricing power.

          They will have pricing power for decades… I expect to average a 10-15% gain/year over the long haul even if I do almost nothing. And no appreciable taxes because most of it will never come out but it will be there, just in case!

          People are paying 5% for your money because right now they can do much better than 5%. I am too. I am up 15%+ in price appreciation in the last 6 week. Now, the start, is when money is made in bull markets.

        • MM says:

          “and you will be getting 1%”

          Ahh so you believe the Fed will pivot and cut rates.

          I personlly just don’t see that happening. Interest rates were in a downtrend for the last 40 years. Look at the history of interest rate cycles.

          Also, Jpow has been very clear about rates remaining higher for longer.

          “I am up 15%+ in price appreciation”

          Meaningless until you cash out and realize that gain – hope you’ve been taking some profits on the way up.

    • longstreet says:

      Now that seems a rather slow indicatior…..
      where it takes 10 consecutive up days to flash a “buy”.

  3. SoCalBeachDude says:

    MW: US 2-year Treasury yield ends at almost two-week high despite soft European data

    • hardbitten says:

      Used some SPOTIFY profits to buy some 1-year today. Love these 5%+ yields as place to park profits while waiting for something nasty to happen in the market. Feels overextended.

  4. Gary says:

    The new China + policy or “friend shoring,” is really a pivot of jobs to India. This gets little press, perhaps due to its recent discussion. China was said to hold down inflation for decades, India is similar in size and even produces many of our H1B workers that our captains of industry say are vital to our economic success. Perhaps ramping up our Indian friends help could solve part of this services inflation problem. In addition, our friends in Mexico have not been treated as well as in the past or as worthy considering they are our immediate neighbor with a history, cultural, and population connection tightly bound to our country. Typically, we received many hard working dedicated people from Mexico in construction as well as the very food we eat. This housing shortage in part, other than “zoning” practices, must have a major component of oppression of our vital Mexican worker friends.

  5. old school says:

    Government plans on running budget deficit of more than 6% of GDP for the next decade and that is without a recession. Government over spending is the inflation problem. Going to get ugly as Powell has to keep on raising to offset the government juicing.

    • Z33 says:

      Well, with $2T+ annual budget deficits, GDP can be propped up by government expenditures with the fiat currency. And the Cantillon Effect will show it as positive GDP growth as the inflationary force it provides will be delayed given the govt is first to spend that dollar and contribute to GDP. Right now they’re net spending more ($2T/yr) than Fed is removing ($1T/yr?) so overall net positive to private sector by a lot…

    • Kent says:

      If I were a captain of industry and knew that fedgov was going to be running deficits of 6% of GDP per year, I’d be amping up production by at least the same amount. Not inflationary, but definitely juices profits.

      • Bobber says:

        “If I were a captain of industry and knew that fedgov was going to be running deficits of 6% of GDP per year, I’d be amping up production by at least the same amount. Not inflationary, but definitely juices profits.”

        Instead, I think you would amp up production by 3% and increase your prices by 10% to maximize your profit while limiting downside. Deficit spending is inflationary.

  6. Here in SoCal gasoline prices never went down. They were 499 at my station, for a long time, then broke through that a few weeks ago and are now about 535. I am getting cold calls to sell my house. Prices are still right at the highs. Groceries the same. The new semiconductor plants in Phoenix are having trouble recruiting workers. The CDC is warning of new virus this fall, the scourge of the working class. In a fab plant you wear a mask anyway.

    • jon says:

      “Prices are still right at the highs. Groceries the same.” If this is true then inflation has basically gone down to zero.

      The scenario I see is: inflation goes down to zero. Prices stuck at high levels. Essentials of life out of reach of middle/poor class. Rich made it out like crazy. Fed along with govt declares victory. Govt deficit keeps on increasing funded by FED.

      Hope you all get the big picture.

      Housing in socal is crazy hot right now.

      • SoCalBeachDude says:

        Housing in nearly all of the excellent coastal areas of Southern California has come to a screeching halt over the past 2 months and there isn’t a single for-sale sign where I live.

        • Harry Houndstooth says:

          Forced sales: death, divorce and default, will determine the market price.

        • John Kaye I'm not says:

          I live in eastern Washington… I am a transplant, been in Washington state 27 years both ends of the state.
          I have very mixed feelings about the state good and bad (lived in 6 states prior to this one).

          I often ask strangers where they grew up. Seems like about 25% of respondents say California, often southern California. Some moved here long ago, some more recent. None volunteer that they miss it.

          Where I live is definitely not paradise, imo, … draw your own conclusions.

      • rojogrande says:

        “’Prices are still right at the highs. Groceries the same.’ If this is true then inflation has basically gone down to zero.”

        I disagree. What Ambrose Bierce said can absolutely be true without inflation being basically zero. First, house prices (as opposed to rent) aren’t part of inflation measures and groceries are just one part. Second, the whole article was about sticky core services inflation in July, which is unrelated to either home or grocery prices. Maybe inflation eventually goes to zero, but nothing AB said suggests it has already gone down to zero.

      • longstreet says:

        I still can not understand why the SPIKE in prices is accepted if the rate of increase declines.
        In rough numbers…
        we are up 20% in 3 years in prices
        the Fed target was for 6% up in 3 years (3 Xs 2%)
        so now we are to accept the extra 14% (20 – 6) as “okay”?
        The starting point for correcting this inflation should NOT be YOY but starting in 2021.
        Here’s hoping someone at one of these hearings asks Powell about this.

        • Kent says:

          The Fed isn’t in charge of the prices companies try to get for their products nor the willingness of people to pay them.

        • Einhal says:

          Kent, the Fed could easily induce deflation if it wanted to. The key being “if it wanted to.” It doesn’t.

        • longstreet says:

          are you suggesting it is the companies out there that are responsible for the inflation?

        • Profoundly simple says:

          Kent ,

          Good comment amazing no one hardly ever makes it. Not sophisticated enough perhaps. Ha ha ha.

          Yes sir, JP or somebody demands biz execs raise prices. Its COMPLETELY out of their control, gotta do it.

          I’m a vegan. I never buy those $6 per pint soy, oat, coconut, whatever non dairy ice creams. I noticed regular ice cream was like $2.40 a quart.
          So $1.20 a pint.
          Vegans paying 5 times what non vegans pay. Not this one, I make rice pudding instead. But plenty of vegans, poor, rich and in between do it or it wouldn’t be there. Biz execs love those vegans.
          Vegans: People supporting the Preposterous Profits.


          If JP forced deflation would unemployment be rising too ? Maybe JP doesn’t want it to go up very much (regardless of what he might say).

  7. William Leake says:

    Kommisar Powell knows rates will be higher for longer, just as he will try to soft soap the hikes in his presser on Wednesday. The Central Committee (the Fed) has given us rip roaring wage inflation.

    • Gomp says:

      William. Maybe I misunderstood your comment. But I agree with Old School. Going to get ugly as Powell has to keep on raising to offset the government juicing.

      • William Leake says:

        Gomp, we all agree. I was suggesting that contrary to popular belief, we live very much in a centrally planned economy, somewhat like the Soviet Union. Look how the stock market hangs on every tiny word by Kommissar Powell and how the Central Committee drives the economy by moving interest rates. I adapt, but I also see what is going on.

        • Mia Storrys says:

          Yes! It’s insane that people accept being herded into target funds in their 401k to prop up fake asset markets in the belief that the Fed will never let it crash.
          Meanwhile most of the economy and markets have been stealth nationalized, to the benefit of the rich.

        • JimL says:

          Crazy talk is still Crazy no matter how much it is repeated.

  8. AV8R says:

    UPS Stock price suggests street predicts cooling off period, arbitration and contract by October.

    • Thomas Curtis says:

      Something like that sounds about right to me. We haven’t had a ‘real’ strike in the U.S. in decades.

      I grew up in a coal mining area and imbibed an understanding of the feelings of miners and owners during the union forming strikes of the 1930’s. Todays strikes mean little.

      • n0b0dy says:

        well back in the era you reference, ‘labor’ actually had some political clout. now, the corporations have that ‘locked up’. all the unions can do is put on their best ‘show’ and hope the corporations give them something.. its entirely an act, and both parties are well aware of their respective positions. there are no more union boss ‘crusaders’ like jimmy hoffa.. only tired hacks looking for the most comfy payday they can get, remain..

        unprincipled capitalism has turned the entire social construct into one giant bargaining scheme where the only result is money shifted around from one party to another. justice and equity are not considered anymore, as dollars simply substitute for those concepts. since the corporations run everything, naturally the gov’t and its agencies always take their side against ‘the people’. look at biden’s intervention in the railroad strike last year as an example.

        even if this UPS ‘strike’ happens, it wont cripple their operations anyway, because not all of their personnel are unionized. and, unless fedex, amazon owner/operators, and USPS joined in the mix, the disruption would be an annoyance, nothing more. but you see, those other groups arent aligned with their so called ‘bretheren’ at UPS.. and THAT is exactly the problem: there is no more ‘labor’ movement.. just isolated groups agitating for their own singular, narrow interests.

        • Thomas Curtis says:


          I couldn’t argue with hardly any of that.

          Sadly, we don’t live in a very fair world and most people and unions don’t get serious and fight until they are hungry and scared. We are fat

    • longstreet says:

      Lots of strikes to come…
      and that means more service type price pressure. IMO

      • BS ini says:

        Yep UPS signed deal today (Tuesday) with teamsters and of course hourly wages going up and UPS will have to pass on costs to consumer

  9. patrick says:

    I have been out of actual running of a business for a long time – however I have kept in touch with many and socialize with them and their young replacements – all of them sing the same song – ” we can raise our prices with no fear of losing our customers ” and ” our work force quality is declining quickly “

    • tom21 says:

      Own a mom & pop. Most of our friends the same.
      Trades & construction related you are correct on the price increases.

      Own a bar/restaurant/supper club….they ALL have them listed for sale.

      Amish friends? Quite bunch, and can’t get a few old fashions in them to loosen them up.

    • Thomas Curtis says:

      Hi Patrick,

      ” we can raise our prices with no fear of losing our customers ” and ” our work force quality is declining quickly “

      Your view on the work force seems too real. Work force quality especially at the lower end of the pay scale is going to take an awful lot of time and effort to improve (if possible at all?).

      Prices/inflation will be quicker to solve though I think 2.5-3.5% will be the new normal. So, the long bond will be 5.5-6.5%? Bonds aren’t talking about that yet.

      A government debt reckoning that requires both sides of the isle seems certain in the next few years.

      I think markets can work with all of this as long as employment stays strong. It will probably will be more of a stock pickers market and less of an indexes and ETFs market. More like an old fashioned market maybe?

    • JimL says:

      People who complain about a declining workforce quality are really just complaining about a declining workforce quality at a price point they are willing to pay. If they paid more, they would get a higher quality workforce. Simple supply and demand.

      They have already admitted they can raise prices without fear of losing customers. So why not raise the amount they are willing to pay workers to make the product?

  10. jon says:

    FED can take cognizance of the title of this article and if they are serious about taming inflation, they should hike by 50bps.
    If FED is not serious then they’d raise by 25bps and send out a dovish statement.
    Stocks are real estate prices are already pretty close to ATHs.

    • Wolf Richter says:

      News Flash: The Fed already hiked by 500 basis points, the most in 40 years — sorry you missed it — and continues to hike. And it cut its balance sheet by $700 billion in a year. What’s this silly BS about “if” the Fed is serious???

      You people want the Fed to create total chaos so that your dreams of QE and 0% come true all over again?

      • Sporkfed says:

        It’s because when you are losing the game, you don’t want
        to drag out the result. If you’ve got to start the rat race over, it’s best to do it sooner rather than later.

        • Wolf Richter says:

          Cracking down on inflation by pushing up interest rates and removing liquidity is not a rat race, but a balancing act between SLOWLY getting inflation back under control or rapidly destroying the economic lives of people who might lose their jobs in the crackdown and chaos that might ensue.

          So now the economy has adjusted to 5%+ short-term rates. Conservative investors earn 5%+. Wages are growing at about 5%. Core inflation is running at about 5%+. The labor market hasn’t rolled over yet, people are still working and clamoring for higher wages and better working conditions and are getting them. So that’s not the end of the world. It’s not the worst place to be. It’s a far better place to be than QE, 0%, and whatever chaos on problems might arise by going too fast.

      • Jon says:

        But according to umpteen articles of yours these rate hikes are not making a dent and inflation is still red hot.

        People disbelief the notion that fed can do qe in near future but who would have believed in 2020 beginning that fed would have such a high balance sheet.

        • Wolf Richter says:

          Agreed, those rates have not brought down inflation to the Fed’s target range. However, they seem to have stabilized core inflation in the 5% range (depending on the measure). This type of inflation is a long game. See my comment just above.

          There is a lot of good discussion and differences in opinion in what the Fed should do, but saying that the fed is “not serious,” or “if it were serious, it would…” is just silly. The Fed is very serious about this as you can tell from what it has done so far.

        • Wolf Richter says:

          The phrase, “the Fed is not serious” falls into the same Wall Street hype category as the “Fed will pivot” — we’ve been hearing both for over a year now.

        • cas127 says:


          Is there any way to break out that “services” inflation?

          With housing and medical included in services (and whatever other monster I’m forgetting) it would be useful to see a monthly breakout rather than just the “services” lump.

          Maybe you do such as breakdown periodically (I’m pretty fried today and recall not the greatest) but it seems like I see the “services lump” a lot more frequently in posts than breakouts.

          Without a breakdown, it is hard to try and get a hold of supply/demand factors and possible future directions (including timing of changes).

          For instance, if the services inflation is rooted in housing (30%+ contributor to expense indices if I recollect correctly) then that wave of historic apartments under construction portends something.

        • Wolf Richter says:

          All you have to do is look at it: Itemized services inflation in table format, accounting for 62.2% of total CPI, plus charts for core services CPI, housing CPIs, and health insurance CPI. This is a MONTHLY feature, when CPI is released.

        • JimL says:

          That is simply not true. Not at all.

          The rate hikes, combined with mild QT has made a dent in inflation. Inflation is nearly half of the highs of where it was recently. That is a big dent. Sure, there is more work to be done, but the FED isn’t finished either.

          Driving inflation from 9 or 10% to 3% does not happen overnight. If it was done, it would cause chaos.

      • LIFO says:

        The mainstream media always talks about the last 40 years, too. Unless my memory is totally rotten, we haven’t had a lot of headline inflation during the past 40 years. I’d like to see inflation and interest rate data since the end of the Second World War, which probably would show more ups and downs.

        As I understand the facts, QE during 2020-21 totaled some $4.6 trillion. By that standard, $700 billion of QT in one year might strike some readers as less than serious even if it’s better than nothing.

        • Wolf Richter says:

          QT is scheduled to run in the background for YEARS. This is just year #1. QT is likely to continue even as the Fed could cut rates in the future, say if core PCE is down to 3% or whatever. Liquidity withdrawal from overleveraged markets is very risky. You can blow up the financial system. Sure, a little faster would have been better. Removing the caps would have been good. Selling MBS outright in small amounts would have been good, in addition to the pass-through principal payments. We can quibble about this, that, and the other. But the Fed has been a lot more serious than I imagined it would ever be 18 months ago, when I still called it “the most reckless Fed ever.”

        • Nadia Preston says:

          QT should be as fast as QE was, if not faster, lest they gave the wrong impression. They should have guided with this, and should never have tried to intentionally create inflation, or misguide the banks about rates.
          It’s absolutely amateur hour at the Fed. The whole financial ship is rudderless, you can see it in the massive deficits we keep running in the ‘good’ times. All will take is a little storm.

        • Wolf Richter says:

          “QT should be as fast as QE was,”

          Withdrawing liquidity out of a leveraged financial system is very risky. If QT had amounted to $2 trillion a month or so, similar to March/April 2020 QE, QT wouldn’t have lasted the first month; the lights would have gone out because everything would have frozen, with payments not getting even processed, and you wouldn’t have been be able to pay for your groceries or gas, and you wouldn’t even have been able to get cash out of your bank.

        • longstreet says:

          IMO rates could just stay here…..and QT can keep taking bigger bites out of that balance sheet.
          The debt issuance schedule coming soon, plus the QT….. I would hope brings to the markets a real supply/demand reality …. and hopefully a positive yield curve. Long term debt should be bringing more of return IMO.
          The Fed has no business in the long end of the yield curve other than to maintain “moderate long term interest rates”. I still consider those rates suppressed and artificially so. 5 Trillion, roughly, on the balance sheet of ten year and out maturities, essentially hidden from the markets.

      • Gary says:

        The comment about interest rates being raised the most in 40 years IMHO misses the mark. The interest rate rise started in late 1970s and peaked 1981/1982. Most in 40 years is 2023 minus 40 = 1983 after the worst of it.
        The Federal Reserve interest rate is computed the same, but the inflation calculation has a methodology producing a much lower result.
        1980s home interest rates were from 13 to 14 percent FHA/VA; a person with a CalVet loan could get a small loan at 6+ percent interest, around the same as anyone right now. That cooled the runaway housing inflation that wasn’t even this bad.

        • Kernburn says:

          To give you an idea of housing inflation in the 70s the price of a home in California doubled from 1970 to 1976 and then doubled again from 1976 to 1980. A fourfold increase in 10 years. It didn’t double again after that until around 1998.

      • n0b0dy says:


        im wondering why i am able to ‘reply’ to this post of yours, but not to numerous others? it seems there is simply no ‘reply’ button on the majority of your commentary here (as well as for some other posters also).

        why is that?

        i sure would like to weigh in on some of the comments that do not have reply buttons attached to them… : |

        apologies for the off subject query…

        • Wolf Richter says:

          Comments go four levels deep (nesting). So: original comment (level 1), reply to original comment (level 2), reply to fist reply (level 3), reply to second reply (level 4). And that is it — for any and all comments. There are no more replies possible because on mobile devices the columns get too narrow to read once you get to the fifth level.

      • Depth Charge says:

        Personally, I completely understand why people don’t take the FED seriously. They increased their balance sheet by $5 trillion in a single year, from 2020 to 2021, but then haven’t even shrunk it by a trillion in a year or so of QT, which isn’t even a 10% haircut. Seems very half-assed.

        The Canadian central bank has cut their balance sheet by almost 50% thus far, by comparison. I think you have also highlighted that even the grossly irresponsible ECB clown show has been more aggressive with their QT.

        It is because the FED is trying to make all of these bubble prices in assets stick. Everybody knows it. The wealthy want to keep their gains, and that’s who the FED serves. Sure, the FED has raised rates, but only after unleashing the most reckless, intentional inflation firestorm in history. They literally HAD to raise, or they risked destroying the currency and the country.

    • Jackson Y says:

      It’s likely to be a fairly hawkish hike. Certainly I don’t expect them to precommit to any pauses or cuts.

      The problem is markets don’t believe them. Every time jobs, GDP, etc. come in hotter than expected, the market simply prices out rate cuts by another month (while still expecting them eventually) & stocks continue exploding higher.

      • Einhal says:

        They have spent the last 14 years damaging their credibility. It’s very hard to earn trust back. Interest rates at 5% and QT (which in my opinion has been too slow) won’t do it unless people are convinced that it’s here to stay.

        • Cookdoggie says:

          Agreed. I’m only convinced that it’s here, not here to stay. They haven’t been tested yet. They are still comfortable in their dual mandate, fighting inflation with no significant negative impact to full employment.

          The true test occurs when their policies ramp up unemployment and the chorus of whining from politicians and the media reach angry seagull proportions, while at the same time inflation still hasn’t retreated to their target. That’s when they have to choose which of their dual mandates matters more. Many here know the answer and just sit idly by grinning smugly, popcorn at their side.

        • Einhal says:

          Cookdoggie, I agree. It’s easy to be strong-willed when there are seemingly no negative consequences to doing so. But I don’t believe Powell to be strong. Strong people often will dig their heels in harder and do what they believe is right, no matter how much criticism they get from the media and the Elizabeth Warrens of the world. Powell is weak, and I believe he’ll cave.

          I just don’t know how quickly.

        • elbowwilham says:

          I kinda feel like they were tested already though. With the banking crisis this year, they moved a lot of stuff around to accommodate the markets. Even to the point of changing the rules. Increasing their balance sheet was no problem for them.

          Why would we think they won’t do the exact same thing in the next crisis?

        • Swamp Creature says:

          WTF is so tight about 5 1/2% Fed funds rate, with inflation bout the same or higher? Doesn’t the saver deserve any interest on the money he has put away for a rainy day? Also, he has to pay taxes on the interest so the net is way less.

          Then I hear the BS that the economy will collapse if the Fed increases interest rates further. The interest rates have gone from zero to 5 1/2% and the economy hasn’t collapsed. And for the person on fixed income who lives off his interest on savings, his economic well being has already collapsed because of this Fed inflation.

  11. America Strong says:

    And the band played ON. Get busy living or get busy crying, there is no recession, the Bear came out of hibernation and went back to sleep. My 2.65% interest rate is the gift that keeps on giving, I hope I’m around to see the money market hit 6%. If ILWU is not striking on the Left Coast, all is well. US skilled industrial labor force know they are needed, get all you can while you can, and never waste a good crises. If the pandemic has shown us anything it is the Shock and Awe shit cloud is possible. “We will tote the note. This years hurricane season will be a doozy. I’m climbing back into the foxhole.

  12. SoCalBeachDude says:

    MW: Overconcentration in U.S. stock market sees fastest rise in 60 years, JPMorgan warns

    • Thomas Curtis says:

      Hope you are right. I am buying miners on London and Australia exchanges.

  13. SoCalBeachDude says:

    MW: Tupperware’s stock sees largest daily gain on record amid meme-like surge

    TUP 75.56%

    • Wolf Richter says:

      LOL, penny stock. Up 68 cents, from 90 cents close on Friday to $1.58 today. Sometimes it’s important to look at dollars and cents, not just percentages.

      The company warned a couple of months ago that it might file for bankruptcy.

  14. American Dream says:

    DBC-commodity index up 7% this month.

    DXY hanging by a thread

    Looks like we’re headed for inflation stabilizing in the 5 percent range so higher for longer here we go.

    Bond Market will probably fight this for a hot minute then collapse

    Time will tell

    • Thomas Curtis says:

      DB is about 50% energy and nearly 20% metal and minerals and that is what I am betting in. The rest is mostly food.

  15. old school says:

    Three month t-bills minus sp500 dividend yield is very close to 4%. That’s about where tech bubble and GFC stock bubble imploded. There comes a point in the hiking cycle that owning stocks isn’t rational unless you have a 20 year time horizon.

    • Rocket Man says:

      The Hot Light is On at Krispy Kreme. Wall St. Can conjure up any stock and make it fly to the moon right now. The gloves are off for the second half, the momentum is in the favor of the ringmasters. Greatest show on earth now in its second act. The faint of heart will sit on the sidelines, Gen Y and Millennials have no option but to play the long game. Boom and Bust bought to you by Dodd Frank. Risk ON. Put the side boards on the wagon.

    • Einhal says:

      It’s not rational UNLESS you believe the three month 5-bill rates aren’t here to stay, and will be back at zero next year. In that case, it’s totally rational.

      • old schools says:

        Why would t-bills be down unless Fed has killed inflation? How is Fed going to kill inflation with stock market at bubble highs.

  16. Steve says:

    I see a lot of looking at sticky services inflation but missing the bigger comprehension – as inflation stays high in things like services and elsewhere, more and more businesses are folding. If you live along a coast in a big city you might not see it, but everywhere where average and poorer people live I just see more for lease and for sale signs all the time now. So the question should be diverted in my opinion. To talk about sticky services inflation we need to talk about the collapse of small business. It is severe and deep already all over (with disguises) but still only in the early stages. This unprecedented interest rate rising and QT will be very effective, overly effective on 80%. 20% might not bat an eye. Its stagflation now. All the strikes represent companies that are struggling with wage inflation, decreased sales and possibly liquidity concerns. I’m getting calls now from my parts vendors, mechanics, my trade shops looking for work and that never happens. My paint shops are hurting for business and everyone says prices are going up still. I tell them all the same thing: either lower your prices or you’ll go out of business. My office just gave me a notice of raising rent but I’m saying no I’m moving out. Just saying no the high prices is a cure for inflation and it appears people everywhere are saying no at least in the middle to below middle class cities where real estate isn’t the sole driver. The bigger problem from sticky inflation is the devastation of the economy in this second half. Commercial real estate has been devastated and who would think the housing sector will not be affected? Most small banks are technically insolvent now? This is a slow motion train wreck one sector at a time now and they are connected dominoes. If there was double the amount of houses for sale I would bet you wouldn’t see more than a 10% increase in sales(not counting flippers/investors). Sales volumes are reflecting people saying no. No I don’t have the money or even if I did I’m not buying. The news media is not covering the reality on the street correctly and charts are also skewed to deflect. Looks like Wall Street may have started shorting the home builders I see that big red candle at a peak we’ll see. A lot of very very smart people and economists see the devastation lining up for the second half. There is a lot more people not working than any unemployment charts show. So many middle age people in units in my complex they don’t even work and they’re poor people all being supported by parents or handouts. I think the charts Wolf puts out in the next few months will look starkly different than the recent ones. Wouldn’t be surprised to see Washington/the media deflect to a new pandemic, climate disaster or some other scapegoat.

    • Einhal says:

      I definitely agree regarding the housing market. It’s basically seized up. Most people realize that prices are absurd given current mortgage rates, and from my anecdotal experience, the ones buying are those who are stretching themselves now, but figure rates will be back down to 4% soon.

      The talking heads see that sale prices haven’t dropped much and talk about the “resilience,” but that’s because most listings aren’t moving at all.

      • Swamp Creature says:


        Rates will never go back to 4%. If anything they will go higher.

        All Real Estate is local. Around here things are moving. Even crap is selling if priced right. High end stuff is doing great. The rich are getting richer. The poor are getting poorer. Homelessness is expanding.

        We did our 1st foreclosure the other day. Nice home. They priced it so there will be a bidding war.

  17. Sporkfed says:

    In 2008, they bailed out the banks. Now the working class and retirees get to foot the bill
    with inflation. The Fed, and by extension, our
    government, is waging class warfare. That’s
    why people are angry.

    • Wolf Richter says:

      Wages are now rising faster than inflation, especially at the lower end of the wage scale. Social Security is adjusted for inflation and for 2023 got 8.7% COLA, which retirees like a lot, just ask them. Retirees are now also getting 5%+ on yield income products such as CDs and T-bills.

      Sen. E. Warren said the opposite of what you said: that by fighting inflation, the Fed is hurting workers.

      The Fed is not going to make anyone happy with its inflation fight, it seems.

      • Einhal says:

        Sen Warren is talking like a populist, but she’s really trying to protect Wall Street and her wealthy donors. All the politicians are the same.

        • JimL says:

          A person has to have their head buried pretty far up their heiny (well past the colon) to think Senator Warren is a creature of Wall Street.

          Where the heck do people come up with BS like this?

        • 1%, .1%, .01%, .001%... says:

          I’m not a huge fan of EW but most people would think you are quite wrong.

          That said, one problem i have with her and Bernie is there obsessive focus on the 1%. If the 1% all left the US tomorrow I dont think it would change the substance of our country much at all. When I listen to what middle class Americans have to say about various issues… they bug me as much as the wealthy. The MSM and politicians in general bug me a lot too.
          I’m middle class.
          The other thing that bothers me with EW and BS : their indignation !
          Some emotion is ok, but they just ooze with indignation… mostly aimed at the 1%. Me… I get upset that all these politicians allowed investors to buy so many homes… why wasn’t there discussion by them… some limits on how and when investors could buy ?
          But not much from EW or BS in 2019 concerning affordable housing.

      • Swamp Creature says:


        I’m one of those you sited. I’m doing fine. We got the 8.7% SSA COLA, Fed annuity, 5% CD rate. Our fees for doing appraisals went from $525 to $625. Warren is critical of the Fed for the wrong reason. I wish the Fed would move a little faster in raising interest rates about 3% above the real inflation rate which is the historical norm. The real core inflation rate is more like 6 to 8% or higher, not what the government is reporting. So, the Fed Funds rate should be 3% above that which would put it at 9% to 11%. These .25% rate increases ain’t gonna cut it to reduce inflation.

        • Steve says:

          But they (the small raises)will do it to destroy demand and crush the highly overleveraged economy which is the bigger concern. What does it matter if wages are up 50% if 50% of businesses fold? Cut your head off to save your arm? There is so much overextended leverage at risk right now its unprecedented. So many unsustainable business models especially in tech . Look at the charts in every historical bubble: a mountainous upside followed by an EQUAL downside. This upside is the biggest in history. Some inflation is never going back. But what is happening in the wealth transfer(inflation is just another word for wealth transfer) is a slow decline in living standards to third world status. Rampant crime, poverty and food shortages. This is inflation – The Fed destroyed this country to get and keep the rich rich. And Washington went with it because they are rich and puppets of the rich. And Wall St colluded with the Fed because they all get rich raping the common working man. And no one had the stones to regulate this greed. So here we are left to collapse this bubble and living standard and still have inflated(wages, etc.). Think of it properly: like drunken sailors we partied for 50 years on drugs we didn’t pay for or research..Now we find the drugs are deadly and our bodies are fatally worn out and dying from overdosing. All that is left is to say it was one heck of a long party with memories. Rest in peace(capitalism, freedom, standard of living). Kiss the kids goodbye and say “it was just simply MY time, nothing personal”.

      • Thomas Curtis says:

        I am VERY HAPPY with the fed. I think they have done a wonderful job!

        I wonder if they let inflation get to 10% on purpose, to ensure the economy and the world got going. That is just a hypothesis of mine but it fits the fact well…

        • 2011 to 2022 says:

          Steve sees the glass 99% empty. you see it 99% full (well personally anyhow).

          Maybe Steve is right but then again maybe the Fed was pleased the middle class was making $$ with home price increases and low unemployment… so dont fix what ain’t broken…leave interest rates really low. Renters were hurt by this as were people who had little ownership of stocks and/or didn’t own real estate.
          2011-2019 investors did great, middle class pretty well as a whole (mixed bag), poor left behind.
          2020-2021 same as 2011-2019 but amplified… pandemic spending and supply constraints I keep reading largely responsible for the boom.

          Wealth disparity between haves and have nots probably increased, maybe a lot (?) 2011 to 2022.

        • Swamp Creature says:

          Thomas Curtis

          You sound like George W to Brownee after Katrina:

          “Brownee, you’re doing one heck of a job”

  18. Stormin Norman says:

    Check Out John Hussmn’s Monthly Articles
    His Analysis is Very Convincing
    Total Returns for the next 10 yrs will be Negative !

    • andy says:

      Oh, by mistake I clicked on his monthly from July 2017. His analysis for stock returns in the next 10 years was even more negative. However, he now refuses to call the top. So stocks probably crash soon.

      • Z33 says:

        I read his July 22, 2013 post and reads “Aside from reminding buy-and-hold investors to allow for the potential for very deep interim losses, the other concern that I would add is that our present estimate of 10-year prospective S&P 500 total returns is now less than 2.9% annually (nominal), and those estimates have been quite accurate historically. ”

        S&P 500 was almost at 1,700 that day. Now over 2.5x 10 years later LOL.

        • old school says:

          He is no dummy and was taught by some of the best. It is an unusual situation that a lot of people who are amateurs have smoked him as far as performance.

          Fed did run experimental policy for 10 years and unless they can unwind it, the Fed has monetized somewhere around $ 4 Trillion of government debt. Lets see where we are when they run off their balance sheet and they have inflation back to 2%.

          Warren Buffet seems to do OK over any decade no matter what monetary policy is.

        • Knowledge vs. predicting abilities says:

          old school,

          Most mutual fund managers have MBAs or at least considerable schooling in finance. (I have owned many mutual funds… small stakes in each).
          Most underperform the indexes.
          Sometimes the whole fund family implodes. Its happened with 2 funds I owned, coincidentally both NYC based.
          Or a fund might do well (match its catagory index) and then underperform hugely in a year (20%) … the deficit never to be regained.

          I’ve learned that a lot of people in the investment world know a lot but aren’t worth a hoot when it comes to predicting future returns. Buffett or someone else is frequently quoted as saying they can’t predict returns in the short term but can in the long term.
          Well that’s a general statement.
          A lot of financial “experts” can’t do a very good job of either in my opinion.
          Not when it comes to specifics.

  19. spencer says:

    The demographic shift will keep “sticky inflation” up for years to come. The FED doesn’t control the supply side, just the demand side.

  20. Swamp Creature says:

    The price of crude oil has jumped $12/gallon recently. Most of the gas stations around here have raised their prices about $20/gallon on average. I went by my “Gas Station from Hell” and didn’t see any significant price increase. Wolf needs to check out his “Gas Station from Heck” to see if they’ve increased their price in concert with the rise in crude oil prices.

    • JimL says:

      What planet do you live on that has stations have raised their prices by $20/gallon? Hasn’t happened anywhere here on earth.

  21. Micheal Engel says:

    India banned non Basmati white rice export. India is 40% of the global
    India dbl down on Ukraine ban.

  22. rick m says:

    “Hurricane season will be a doozy” Really? Where , exactly? I live 390 paces from the Gulf of Mexico. Certain foreknowledge would be handy.
    I’ve lived here for thirty-plus storm seasons. The worst storm is the one that hits you after cantore and the rest said it’s going somewhere else, and you believed them until it’s too late to evacuate. Eventually you stop trusting the “authorities”, like meteorologists and Fed chairs, and make your own decisions.

  23. MarkA says:

    One way to address services inflation – replace people with machines. From WSJ ““In three years I don’t think there’s going to be any human taking an order in any drive-through in the U.S.,” said Krishna Gupta, chief executive of Presto, a provider of the technology at nearly 350 restaurants across the country, including Hardee’s and Del Taco. “

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