Lost amid the attention that will be paid to the jobs report on Friday will be the monthly ISM service sector report, which will continue to show upward pressure on service prices and inflation overall.
The increase in service sector prices pre-dated the recent supply shock and is part of a broader rise in inflation and interest rates that underscores what we see as a regime change across the economy following the pandemic.
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Sticky service sector inflation is now part of an economic mosaic that will feed into the conversation around the probability of rate hikes by the Federal Reserve later this year.
A simple regression on the relationship between the ISM services prices paid index and the consumer price index shows that the former explains 74% of the variation in the latter.
While it is understandable that rising oil and gasoline prices have gained much of the attention, the focus should be on sticky service sector costs when it comes to longer-term inflation trends.
