Inflation for Services Is Only 1.25% vs. 3.64% Avg. Over Last 25 Years; It's 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."
4 Comments:
this BLS number fails the smell test.
health care is services.
that cost is going up at a double digit rate.
healthcare is 18% of the economy.
services are 68% of GDP.
thus, healthcare is 26.5% of services and ought to be contributing over twice (2.65%) the reported services inflation rate all by itself (unless, of course, you underweight it by 2/3 as BLS does)
that implies significant delation in all other services if we are to believe this number.
even if we halve healthcare inflation assumptions to 5%, a number that is lower than anyone credible is claiming, it would still account for over 100% of the reported services inflation.
the only way to get to a number this low is to ignore healthcare (and many other services like education).
but, so long as you call that "geometric weighting" it's amazing how many people you can get to believe it.
Inflation has all of the punch of Tiny Tim strung out on coke.
Liberace looks tough neext to inflation.
Boy George scares me more than inflation.
benji-
paris hilton and lindsay lohan impress me more with their intelligence than you do...
hugo chavez has more economic sense than you do.
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."
This is the same guy who said that there was no housing bubble and that the financial system was sound. This is the same guy who said that dropping money out of helicopters was a good idea. I am sorry Mark but I wish that you stop pandering to power and see reality as it is.
[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.
First, this ignores services like health care. Has that gone down?
Second, when you do have a recession and the real economy is contracting I would expect that costs for services like dog walking, hair cuts, massages, lawn care, babysitting, house cleaning, painting, etc., will go down. All that means is that people are having a hard time making ends meet and are cutting back on demand, which forces providers to lower their prices.
The problem is that you want to have it both ways. You want to claim that prices for services are going down but that at the same time the real economy is recovering nicely. I do not believe that an objective view of the data supports both of your incompatible positions.
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