The last commentary of 2021 (US: Warning for equities in 2022, December 20th, 2021), noted that the unwind of many pandemic related price increases had proved to be short-lived. Price pressures were becoming more widespread, and not confined to singular inputs. Bottlenecks may ease in 2022, but even so, any alleviation of price pressures from the supply side will come up against a very tight labour market.
The quits rate surged to a record 3.05% in November. Job postings on Indeed.com continued to rise through December. The 4-week moving average for initial claims also dipped below 200k in the week ending December 25th, falling by 7,500 to 199.25k, the lowest level since October 25th, 1969.
The acceleration of the core services deflator ahead of the CPI is also hawkish for the Fed. Historically, the services deflator has tended to rise more slowly than the services CPI due to substitution effects. But this trend has recently reversed.
The y/y for the services PCE price index accelerated sharply from 3.81% in October to 4.26% in November. CPI services inflation rose less, from 3.65% to 3.77%. Critically, the deflator has tended to lead the CPI at key turning points. The y/y for the median PCE also quickened to 3.35% in November, the fastest annual rate of increase since February 2007.
