Inflation Accelerates as US Service Activity Expands for First Time in Eight Months: S&P Global

The U.S. service sector saw growth for the first eight months in a row, however, selling price inflation increased, placing it at the bottom of the list. “Team Transitory back on the defensive.”

S&P Global Service Purchasing Managers Index (PMI) rose to 50.6 in February from 46.8 back in January. Anything over 50 is considered expansion. This was the first positive PMI since June 2022.

According to the monthly report, new business declined at the slowest rate since October due to low domestic and international client demand. The ninth month saw a drop in export orders, but work backlogs were unchanged. Last month, employment levels were stable.

Market watchers and economists pay close attention to PMI price pressures. The rate of selling price inflation rose to a five month high, while input cost inflation saw the slowest growth since October 2020.

Respondents to our survey stated that the higher output fees were due to “the pass-through of greater costs to clients.”

“A return to growth of U.S. service sector business activity in February for the first time in eight months has offset a decline in manufacturing output, helping stabilize the economy and hopefully avert a downturn in the first quarter,” Chris Williamson, chief economist at S&P Global Market Intelligence in the report (pdf).

“This improving picture has, however, added to firms’ pricing power. Having fallen to a 27-month low in January, the rate of inflation for goods and services reaccelerated in February to its highest since last October as companies reported greater success in passing higher costs on to customers.”

Monetary policymakers have been concerned about rising prices in services. According to the Bureau of Labor Statistics, January’s annual services inflation rate rose to 7.6 percent. This is the highest level since August 1982.BLS).

Is the disinflation trend over?

Some economists and market experts are pondering whether the current disinflation trend has ended or if it is just a temporary bump in the road.

Philip Jefferson, Federal Reserve governor was interviewed at Harvard University in late October stated There is “more uncertainty” Housing inflation excluded from core services.

“The inflation outlook for this nonhousing category of core services partly depends on whether growth in nominal labor costs comes back down, and recent data suggest that labor compensation has indeed started to decelerate somewhat over the past year,” He stated.

A plethora hot inflation headline numbers “have put ‘Team Transitory’ back on the defensive,” says Robin Brooks, chief economist at Institute of International Finance.

The annual Consumer Price Index (CPI), slowed to 6.4%, which was higher than expected. Producer prices advanced at a hotter-than-anticipated rate of 0.7 percent month over month. Each of the Personal Consumption Expenditures Price Indexes (PCE Price Index) and core PCE Price Index grew by 0.6 percent between December and January.

Truflation is an independent data aggregator that tracks inflation. Disinflation has never been confirmed.

“We believe that inflation is here to stay—at least in 2023—and will remain above the Fed’s 2 percent target,” The Epoch Times was informed by Oliver Rust (head of product at Truflation).

“In terms of the inflationary impact on business, this is quite significant with retailers increasing prices as their supply prices are increasing,” He added. “A lot of businesses are posting profit warnings which are signaling the short-term inflationary impact.”

American people believe that inflation will stay above the Federal Reserve target of 2 percent.

Federal Reserve Bank of New York’s FRBNY Survey of Consumer Expectations One-year inflation projections for the future were unchanged at 5%. The projections for three- and 5-years were at 2.7 percent and 2.5%, respectively.

It doesn’t matter how inflation is rated, it still remains stubborn and broad, as economists at S&P Global Market Intelligence claimed in a recent report. note.

“Despite such slowing in domestic final demand, there is little evidence that the exceptional tightness in labor markets is easing, and inflation broadly remains stubbornly high,” They said.

If inflation remains elevated, prompting Federal Reserve to continue raising interest rates and holding them there for a longer period of time, it could lead to its eventual demise. “a shadow over hopes for a so-called soft landing in the U.S. economy,” According to February 2023 Business Conditions Monthly Report from the American Institute for Economic Research.

Officials at the U.S. Central Bank are now indicating that they will trigger a greater rate hike at the Federal Open Market Committee’s (FOMC) policy meeting this month. The FOMC is the Fed’s policy-making arm.

Christopher Waller, Fed Governor told On Thursday, a Los Angeles-based business conference discussed the possibility that the institution will need to increase the benchmark federal funds rate above 5.4 percent. This would be higher than the 5.1 percent peak listed in December Survey of Economic Projections.

“Although inflation has been coming down since the middle of last year, the recent data indicate that we haven’t made as much progress as we thought,” Waller said.

Federal Reserve Bank of Cleveland’s Nowcast projects The February CPI was at 6.2 percent, while the February PCE Price Index was at 5.2 percent. Both the CPI, and PCE are expected to increase by 0.5% on a monthly base.

Rust pointed out that these trends may force the FOMC raise its policy rate by 50 basis point.

“What happens after that is unclear,” He stated. “The Federal Reserve needs to strike a delicate balance between tackling inflation and avoiding recession as, despite strong employment numbers, we are now seeing corporate profit warnings and increased news of layoffs. This suggests we are in a more delicate situation than we were four weeks ago.”

According to the The Investors’ Guide, 30 percent of investors are expecting a half-point lift, while 50 basis points will be added this month. CME FedWatch Tool.