The chart above shows annual inflation rates for the service component of the CPI from January 1984 to January 2011, and helps to illustrate the point made in today's WSJ article that "Modest price increases for consumer services are keeping inflation subdued."
MP: Indeed, the current inflation rate for consumer services is only 1.25%, which is only about 1/3 of the 3.64% average over the last quarter century (see chart). Other key points from the WSJ article:
"For most of the last 30 years, goods prices had been held down, in part, by cheap imports from low-wage countries like China. But recently, China and other developing markets have become huge consumers of commodities, which is putting upward pressure on American prices for many globally traded goods.
U.S. households spent $7 trillion on services last year, accounting for 67% of total consumer spending. Because the services sector is so immense, the U.S. economy is less exposed to the cost pressures imposed by global trade than many other countries.
Fed officials expect this factor to help hold down U.S. inflation in coming months. "The bulk of the increase in commodity prices is a global phenomenon," Mr. Bernanke told lawmakers earlier this month. "Inflation made here in the U.S. is very, very low."
[Compared to the goods sector], prices in the services sector are under much less pressure. The overall weakness of the domestic economy is restraining them. High unemployment, for example, is holding down wages."