Investors were cheering over the last few months on signs that inflation was easing and deflation had arrived, but the most recent CPI numbers from the Bureau of Labor Statistics indicate the Federal Reserve’s path to tame prices will be anything but smooth. Some economists point to services inflation as inflation’s newest culprit, replacing supply chain bottlenecks.
Straight Arrow News contributor Larry Lindsey believes the accelerating prices in services industries are one of the main reasons why interest rates will rise more than anticipated.
Lots of commentators told us last year and even early this year that inflation is dead. It reminds me of an old joke. Nietzsche used to say God is dead. The response is, God said, ‘Well, Nietzsche is dead.’
The fact is: Inflation is not dead. It’s coming down but it’s coming down gradually. We recently got the report on the Consumer Price Index. And if you just look at the numbers, it’s hard to detect a trend. Here they are for the last seven months: 0.4, 0.6, 0.8, 0.5, 0.5, 0.6, 0.5. If you can look at those numbers and come up with anything other than a trendless 0.5, which, by the way, is a little over 6% inflation at an annual rate, well, then good luck to you, you’ve got better eyesight than I do. You really have to squint. So there’s no trend. By the way, these are the service numbers, the core service numbers, and that’s what the Fed is looking at the most. Because services, unlike goods, tend not to be so volatile.
We know, for example, that energy services were extremely volatile and that caused a lot of the movement in the headline CPI. But although energy prices went up 29% in the first half of the year, they came down 26% in the second half of the year. And now it looks like they’re on the way up. So that’s why the Federal Reserve and I prefer to look at the services number.
