Goods vs services
For many months now, economists have been glued to the outlook for US service-sector inflation. Federal Reserve Chair Jerome Powell himself had flagged that, with supply chains getting fixed, the trajectory for goods prices was normalizing. Housing costs would at some point also stop climbing. That left all eyes on "supercore" services.
Except now they're turning back to goods — underscoring the bumpiness of the US inflation road.
Lower prices for everything from apparel to used cars were a major driver of the faster-than-expected downdraft in inflation in the second half of 2023, and a slower pace of price declines since then has contributed to higher readings so far over the first several months of 2024.
Whether supply chains are fully healed from pandemic and war-related disruptions or not has policymakers divided on the outlook. Powell suggested last week "we could get more" improvement and thus lower prices. Some of his colleagues seem more skeptical.
'Gradual Pace'
"While supply chain improvements had supported disinflation for goods prices over the previous year, participants commented that an expected more gradual pace of such improvements could slow progress on inflation," minutes of the Fed's April 30-May 1 meeting showed.
Still, Morgan Stanley economists led by Ellen Zentner have zeroed in on just three categories responsible for the recent slowing in goods deflation in the Fed's preferred inflation gauge, the personal consumption expenditures price index: apparel, video tapes and computer software.
Read More: White House Touts Fed Independence as Trump Advisers Eye Changes
They noted strengthening supply chains and deflation in China were reasons to expect prices to drop further.
"There is no evidence of broad acceleration, and the story looks more like a temporary adjustment of relative prices," the Morgan Stanley team said in a mid-year outlook report published earlier this week.
For Fed Vice Chair Philip Jefferson, the jury is effectively still out. He said Monday he'll be watching the incoming data to see "how much more help" the supply side can provide.
Many squirreled away cash while in quarantine during Covid. What about you? Tell us here whether you were able to.
Except now they're turning back to goods — underscoring the bumpiness of the US inflation road.
Lower prices for everything from apparel to used cars were a major driver of the faster-than-expected downdraft in inflation in the second half of 2023, and a slower pace of price declines since then has contributed to higher readings so far over the first several months of 2024.
Whether supply chains are fully healed from pandemic and war-related disruptions or not has policymakers divided on the outlook. Powell suggested last week "we could get more" improvement and thus lower prices. Some of his colleagues seem more skeptical.
'Gradual Pace'
"While supply chain improvements had supported disinflation for goods prices over the previous year, participants commented that an expected more gradual pace of such improvements could slow progress on inflation," minutes of the Fed's April 30-May 1 meeting showed.
Still, Morgan Stanley economists led by Ellen Zentner have zeroed in on just three categories responsible for the recent slowing in goods deflation in the Fed's preferred inflation gauge, the personal consumption expenditures price index: apparel, video tapes and computer software.
Read More: White House Touts Fed Independence as Trump Advisers Eye Changes
They noted strengthening supply chains and deflation in China were reasons to expect prices to drop further.
"There is no evidence of broad acceleration, and the story looks more like a temporary adjustment of relative prices," the Morgan Stanley team said in a mid-year outlook report published earlier this week.
For Fed Vice Chair Philip Jefferson, the jury is effectively still out. He said Monday he'll be watching the incoming data to see "how much more help" the supply side can provide.
Many squirreled away cash while in quarantine during Covid. What about you? Tell us here whether you were able to.
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