Consumer prices for goods jumped 5% in November.
Yes, the US economy is a consumer economy. And most of what we consume are services like haircuts, Uber rides, and Netflix queues.
Holiday shoppers are experiencing higher prices and lower supplies as they work on their Christmas wish lists. This inflation can catch buyers off guard, and it has certainly caught the attention of investors, the Federal Reserve and Congress.
The scrutiny of inflationary trends has focused on the commodities we buy: cars, vegetables and bicycles. But don’t ignore the price of the services, either. The Fed will not do it.
Consumer prices for goods rose 5% in November. This excludes volatile fluctuations in energy and food. Removing the price of gasoline and dinner can help give a clearer picture of long-term price trends. Five percent is well above the Fed’s slightly above 2% tolerance. In contrast, the price of basic services increased by 3.4%, which is more reasonable.
The central bank’s preferred price indicator will be released on Thursday. Personal consumption expenditure is a more refined and dynamic method of measuring price trends than the better-known Consumer Price Index.
It will be important to look beyond the headline figure to determine the drivers of current inflation. Americans have been on a shopping spree after moderate spending and economic recovery in about the first year of the pandemic. Factories, shippers and other players in the supply chain have struggled to keep pace, resulting in higher prices on a range of products.
The faster increase in the prices of services reflects a labor shortage, even with rising wages. Wages tend to be more rigid than other prices. They usually do not recoil after jumping forward. While a manufacturer or retailer might cut prices to beat the competition and attract customers, it works the other way around in the struggle for workers in the service economy.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is vice president of news. Twitter: @HudsonsView