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Seems Counter-Intuitive in This Crisis: Inflation Heats Up for Services Firms, and They’re Able to Pass it on via Higher Prices

Seems Counter-Intuitive in This Crisis: Inflation Heats Up for Services Firms, and They’re Able to Pass it on via Higher Prices

Even manufacturers, after months of crushed commodities prices, experience inflation and are able to pass it on. Stimulus money the government and the Fed have thrown around by the trillions.

It seems somewhat counter-intuitive in this crisis that companies in the services and non-manufacturing sectors – which dominate the US economy – would report higher input prices and higher sales prices. And there are now also smaller pricing pressures cropping up in the manufacturing sector.

“Inflationary pressure returned as both input prices and output charges rose for the first time since February, with both increasing at solid rates,” reported IHS Markit this morning in its Services Purchasing Managers Index (PMI) for June.

PMIs are based on responses from executives about their own companies – if particular activities are higher, unchanged, or lower in the current month than they’d been in the prior month. No quantitative measures or dollar amounts are involved.

“Inflationary pressures intensified for the first time since February at the end of the second quarter, as both input prices and output charges increased,” IHS Markit added in its Services PMI.

“Companies registered a solid rise in cost burdens as some suppliers hiked prices following the resumption of operations at service providers. The rate of input price inflation was the fastest since February 2019,” it said.

“In response to higher input costs, firms partially passed on higher supplier prices to clients through greater selling prices. The increase was solid overall and the sharpest for 16 months,” it said.

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