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Astonishingly different inflation across goods categories

Not all prices have increased in the same way during our current burst of inflation. This obviously holds true for specific, individual prices, but there are also marked differences when you look across broad categories.

The FRED graph above shows the three major categories of durable goods, nondurable goods, and services.

  • Durable goods (in red) led the charge back in mid 2020 and have had the highest percent changes of the three categories so far. Now this price inflation is strongly declining. A large component here are used and new cars.
  • Nondurable goods (in blue) have had more inertia, but this price inflation has started declining as well.
  • Services (in green) have flown under the radar, but these prices are showing no sign of decreasing and may soon be the category with the highest inflation rate.

This phenomenon isn’t new. The second FRED graph expands the series over the entire available period, back to 1956. If you look at the level of the CPI instead of its growth rate, you notice that the CPI for the three categories has widely diverged since the mid 1980s. Durable goods have lower inflation, which is thought to be the result of tremendous technological advances, particularly in information technology. Services benefit the least from productivity enhancement, as they have a much larger share of labor inputs, so these prices always increase more than prices for goods.

How these graphs were created: In FRED, search for and select “CPI non-durables.” Click “Edit Graph,” open the “Add Line” tab, and search for and select “CPI durables” and then “CPI services.” Restrict the sample period to start in January 2020. Then change the units to “Percentage change from previous year” and apply this to all lines: “Copy to all.” For the second graph, use the first graph but show the full series (back to 1956) and change units to “Index 1982-1984 = 100” and select “Copy to all.”

Suggested by Christian Zimmermann.

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