Service Sector Inflation Accelerates

Is inflation accelerating or decelerating? It depends on where you look.

The inflation story differs tremendously depending on whether you look at goods or service inflation. Goods inflation is very low and stable–the producer prices for finished goods less food and energy are rising at only 1% per year. 

By comparison, service sector inflation is accelerating.   Over the last few years, the Bureau of Labor Statistics has started reporting producer prices for what it calls “traditional service industries.” These include such services as healthcare, finance, information services, legal, accounting, management consulting,  security guards, employment services, janitors, advertising, and so forth and so on.  Many of these services are mainly bought by businesses, so they don’t show up in the CPI. They also tend to be labor intensive and more domestic.

Which one of these should the Fed be watching?  I’d say that service sector inflation may turn out to be a better indicator of domestic price pressures.

Comments

  1. It is a double edged sword, isn’t it? Services are essentially wages. Having nearly achieved the long sought service economy, and having wrung just about all there is to squeeze out of the China price, there is not much chance to keep inflation in check without suppressing wages. No wage growth, no export growth, and no outsized population growth, can only mean restrained economic growth, except for deficit spending. Inflation will not be welcome, but relenting a bit on service wages might be the fastest way to strengthen the economy.

    • CompEng says:

      I would say rather that the jobs which are hardest to outsource or automate are the least susceptible to quick growth in productivity. These will be the most plentiful jobs as well. Since their productivity does not rise in tandem with the rest of the economy, we see inflation there. This is our service sector. I don’t think this is a bad thing: it’s the only way for the relatively unskilled to have a living wage.


  2. Remember to keep the producing and take into account more video content – I’m a visual student. biodiesel resources

Trackbacks

  1. […] Michael Mandel takes a look at service sector inflation: “Goods inflation is very low and stable — the producer prices for finished goods less food and energy are rising at only 1% per year. By comparison, service sector inflation is accelerating.” […]

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