Higher prices are evident, even though they’re not on Christmas wish lists
Yes, the American economy is a consumption 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 through their Christmas wish lists. This inflation may catch shoppers off guard, and it certainly has gotten the attention of investors, the Federal Reserve and Congress.
The scrutiny paid to inflationary trends has been concentrated among the stuff we buy: cars, vegetables and bicycles. But don’t ignore the price of services, too. The Fed won’t.
Consumer prices for goods were up 5% in November. That’s excluding the volatile swings of energy and food. Stripping out the price of gas and dinner can help give a clearer picture of long-term price trends. Five percent is well above the slightly higher than 2% tolerance of the Fed. By contrast, the price of core services was up a more reasonable 3.4%.
The central bank’s favored price gauge will be released on Thursday. The personal consumption expenditures is a more refined and dynamic method to measure price trends than the better-known consumer price index.
Looking beyond the headline number will be important to suss out the drivers of today’s inflation. Americans have been on a buying binge after the temperate spending and economic stimulus of the first year or so of the pandemic. Factories, shippers and others in the supply chain have had difficulty keeping up and that has led to higher prices on an array of goods.
Faster increasing prices on services reflect a lack of labor even with rising wages. Wages tend to be stickier than other prices. They usually do not retreat after jumping ahead. Whereas a manufacturer or retailer could cut prices to beat the competition and pick up customers, it works the other way in the fight for workers in the services economy.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView