Service Sector Inflation Soars at Unprecedented Rate

A surge in demand in the services sector pumped even more inflationary power into the U.S. economy, surveys of businesses showed Tuesday.

The Institute for Supply Management said the prices index of its services sector survey, which measures prices businesses pay for supplies and materials, rose to the second-highest ever recorded, just below December’s all-time high.

The S&P Global U.S. services survey recorded its highest level ever for prices charged by services businesses. The big jump output prices stemmed from a faster increase in input prices, S&P Global explained.  Costs rose at the quickest pace since December’s record high, and was the third-steepest on record.

“With firms’ costs inflated by the soaring price of energy, fuel and other raw materials, as well as rising wages, prices charged for services are rising at an unprecedented rate. Consumer price inflation therefore looks likely to accelerate further as we head into the spring.” said Chris Williamson, the chief economist at S&P Global.

The S&P Global survey was known as the IHS Markit Services PMI survey prior to the merger of S&P Global and IHS Markit.

Both reports showed that overall economic activity picked up sharply as pandemic restrictions were further lifted in March.

“Demand for services is in fact growing so fast that companies are increasingly struggling to keep pace with customer orders, leading to the largest rise in backlogs of work recorded since the survey began in 2009,” Williamson said.

The backlog of new orders index in the ISM survey climbed and the supplier deliveries index fell, indicating slower deliveries and ongoing supply chain constraints.

The near-record high indicators of services side price hikes may hurt hopes that inflation would come down as demand normalized with a shift back toward services from goods.