MNI INTERVIEW: ISM Sees Service Inflation Creep Amid Rebound

U.S. service price increases should continue with labor and material in short supply, ISM survey chair Anthony Nieves told MNI Monday, but some pressure will be released once a rollback of Covid restrictions fuels the birth of new enterprises.

The service sector is "starting to see price pressure across the board" and some respondents in the ISM survey "are already categorizing this as strong inflation," Nieves said. "I think it's more of a creeping inflation."

Slowing delivery times will also keep prices high, he said, and respondents through March cited logistics issues, bad weather, and port congestion. "We're going to continue to see these strong price points for quite some time," Nieves said.

The ISM prices index rose 2.2 points to 74 in March, racing past February's 71.8 reading that was the highest since 2008. The overall ISM Services PMI rose 8.4 points to 63.7 in March, an all-time high. Forecasts had called for a 2.5 point increase to 57.8, according to the Bloomberg consensus.

LABOR IN SHORT SUPPLY

Trouble filling available jobs may also be driving prices higher as production slows among some short-staffed employers, Nieves said, mainly in industries like construction.

Even the hospitality industry is roaring back and "can't hire workers fast enough," he said. Leisure and hospitality payrolls grew by 280,000 in March, according to the Bureau of Labor Statistics, following an increase of 384,000 in February.

Still, Nieves said the cost of services is sure to slip as the nation's vaccine rollout allows life to return closer to normal and new businesses pop up where others have closed permanently.

"Competition tends to take prices down," he said, and the economy coming out of the pandemic will have a wider range of options for services. "When we get back to that level, we might see some easing" in prices, he said.