What something called “supercore inflation” can tell us about the current economy
What something called “supercore inflation” can tell us about the current economy
Yesterday, Marketplace’s Samantha Fields talked about the consumer price index and how housing has been driving that up. Well, there’s a move by the Federal Reserve to take a look at a more specific slice of the spending data — one that looks just at services, stripping out housing and all goods.
In November, Fed Chair Jerome Powell said this category could be the most important to understanding the future evolution of inflation. It’s what’s become known as “supercore inflation.”
What exactly is that? Well, for instance, in the past month, I hired a baby-sitter, got a haircut, and bought baseball tickets. All those purchases are measured in supercore inflation.
“It includes a lot of what people actually spend their money on, particularly if it’s for work by another person,” said Alan Detmeister, an economist at UBS who also worked at the Fed. They watch this measure closely because service prices tend to be sticky and slow to increase or decrease. The prices of baseball tickets and haircuts can also be linked to the wages people are paid to cut hair or throw a baseball.
“We would like to know how the wage dynamics will look like going into the future, because then it will feed into inflation down the road,” said Princeton economics professor Markus Brunnermeier.
He also points out the vast majority of the U.S. workforce is employed in providing services, including him as a teacher of economics, and me as a reporter.
According to Ryan Sweet of Oxford Economics, that means that unlike goods, many of which are produced internationally, “this is the part of inflation that the Fed can control.”
Also, it can set monetary policy accordingly to try to cool the labor market. However, It’s worth pointing out that supercore inflation is not an official term used by the U.S. government. Some people measure it differently, and some economists flat out dislike it.
“I avoid it like the plague because I think it’s a terrible term,” said Detmeister. Wages don’t always track with service prices, he said, so how much we pay for baseball tickets or haircuts now doesn’t necessarily give us a clear picture of where inflation overall is heading.
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