BlackRock Investment Institute

Macro insights

Major spending shift

Prices in the U.S. are rising at their fastest rate in about four decades. Last week’s consumer price index (CPI) report showed prices had run up to a 7% annual rate in December. The jump is partly due to major changes in consumer spending. There’s been a striking shift in spending toward goods and away from contact-intense services during the Covid-related shutdowns and the economic restart that
followed. The high demand for goods, combined with the inability of supply to keep up, is responsible for much of the spike in inflation. The annual inflation rate for core goods (which excludes food and energy) is now at 10.7%, compared with 3.7% for core services. See the chart

High demand for goods

Chart showing a jump in core goods inflation

Sources: BlackRock Investment Institute, U.S. Bureau of Labor Statistics, with data from Haver Analytics, January 2022. Notes: The orange and yellow lines show core goods and core services CPI
inflation respectively, measured by the year-on-year percent change in prices.

We have yet to see this shift reverse even as governments have lifted restrictions on activity. In fact, the split is widening. Prices of core goods rose 1.2% in December on the previous month while core services prices climbed a much smaller 0.3%. But we expect some normalization over 2022 as the restart progresses.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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