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Prices Surge Broadly Across the Massive Service Sector and Companies Are Able to Pass On these Higher Prices

Prices Surge Broadly Across the Massive Service Sector and Companies Are Able to Pass On these Higher Prices

The entire mindset has changed.

Services are about two-thirds of the economy. During the Pandemic, discretionary services such as travel and entertainment have been hard hit, and consumer spending on services in February was still down 5.2% from a year ago. But the services sector is enormous, ranging from healthcare to tech, and demand has been strong in many segments, and is coming back in others. Amid backlogs and shortages, input prices are soaring and companies are able to pass on those higher prices. The Fed might refuse to acknowledge it, but everyone else is seeing it.

“The biggest concern is inflation, with price gauges hitting new survey highs in March as demand often exceeded supply for a wide variety of goods and services,” reported IHS Markit in its Services PMI today.

“On the price front, input costs soared in March. The rate of inflation accelerated to the fastest since data collection for the services survey began in October 2009,” the report said.

“Subsequently, firms sought to pass on higher costs to clients through a sharper rise in selling prices,” the report said.

“A number of companies also stated that stronger client demand allowed a greater proportion of the hike in costs to be passed through. The resulting rate of charge inflation was the quickest on record,” the report said.

These types of price pressures in the services sector were also reported today by the Institute of Supply Management’s broad ISM Services Report on Business, whose index for prices paid for materials and services increased in March at the steepest rate since 2008.

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wolfstreet, wolf richter, inflation, consumer prices

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