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A look at services inflation in February

The latest hotness in inflation studies is to focus on inflation in the services sector. Why? Because that's what's highest right now, so it allows you to make a plausible argument that inflation is still a big problem and we need a nice, big recession to finally get it under control. For some reason this appeals to a lot of people.

So here is inflation broken up into its three most basic categories:

Sure enough, inflation in durable goods looks great. Nondurables had a weird spike in January but is on the right path. Inflation in services, by contrast, is both high and still rising. It clocked in at 6.0% in February.

In fairness, services make up about 70% of the economy, so they should be taken pretty seriously. Inflation in the service sector needs to start coming down if we want overall inflation to ever get back to 2%.

But wait! As we all know, the BLS is still recording big increases in shelter inflation because their numbers lag behind reality. So what does inflation in the service sector look like if we remove housing?

If you exclude housing, services inflation came in at 1.5% in February—though if you ignore the spike and just look at the trendline it came in at about 4%. When the BLS finally catches up and starts recording falling shelter inflation, services inflation will come down mechanically to 3% or so. Combine that with falling goods inflation and overall CPI will be in the ballpark of 2%.

And all without the Fed doing anything at all.

6 thoughts on “A look at services inflation in February

  1. joey5slice

    You are embarrassing yourself.

    “People would only care about services because they want to cause a recession…even though they make up 70% of the economy.” Do you know how stupid that makes you sound?

    You’re not stupid! So please don’t write idiotic nonsense like that!

    “All without the Fed doing anything at all.” Are you kidding me? Like, seriously, are you actually trolling us to be funny? They started talking about raising rates in November of 2021. Even if you insist without evidence that Fed action takes 12-18 months to work, we’re there! Things that happen in the economy now are impacted by the Fed.

    As it happens, the impact of the Fed has been quite obvious for many months now, but even your insistence that the 12-18 month lag is an ironclad rule of economics handed down from on high no longer carries weight.

    Please stop.

    1. weirdnoise

      First of all, other than the last line the words you quoted aren't even in the article. Secondly, I took "without the Fed doing anything at all" as referring to continuing to raise interest rates, something Kevin has written about many times in the past, as well as the lags involved in the effects of such rates. Just look them up -- old posts are still here.

      Blogs require familiarity with context, especially ones updated as frequently as this one.

      1. joey5slice

        I accept the quote criticism; I was paraphrasing.

        I read everything Kevin posts. I’m a big fan, which is why it pains me so to see him be so off base on inflation and the Fed. He has repeatedly argued that the Fed didn’t need to raise interest rates because inflation was solving itself without any intervention from the Fed, and that Jerome Powell is dead set on causing a recession. That was the context in which I read his last line. I think he is extremely wrong about this and doing his readers a disservice.

        You may be right about how the last line was intended, but I think my interpretation is actually quite well-informed by the blog’s context.

    2. Dana Decker

      KD: [The] argument that inflation is still a big problem and we need a nice, big recession to finally get it under control. For some reason this appeals to a lot of people.

      Who holds that view? Many are concerned about a recession but hope one can be avoided and instead, there is a soft landing. There are very few looking forward to a big recession other than market shorts.

      1. jdubs

        Larry Summers called for a deep recession. Various economists and Fed members have been more circumspect and used different terms like job openings, wages, unemployment, employment levels, etc....they dont want a recession, they just want all of these data points to look like they do during a recession.

  2. Creigh Gordon

    ...but that won't prevent the Fed and most economists from claiming credit for saving the economy from danger of hyperinflation...

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