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Prices paid by service-producing businesses hit a record in July in the Institute for Supply Management survey. “We see inflation coming into the picture more and more,” said ISM economist Anthony Nieves. “There’s a real shortage. That’s the reality of it.”

Services comprise nearly 80 percent of the US economy, so the ISM data portend ample and sustained inflation.

Consumers are already grappling with the fastest inflation for durable goods since the 1970s. Used-car prices, driven by faltering auto production due to the chip shortage, comprise one part of the problem. But import prices are rising with a falling dollar, as well, boosting the cost of foreign goods (“Will China Bail Out Biden?,” Aug. 3, 2021).

And the worst of it is an explosion in rents. According to, the median US rental unit cost 11% more in July than in February. As the chart shows, part of the rent explosion was catchup: The Consumer Price Index for rent didn’t take into account the temporary dip during the COVID recession.

Now the data have more than caught up, and have nowhere to go but up. As we’ve noted in the past, the vacancy rate for rental apartments is around the all-time low of 6%.

Rent is important for the US consumer price index because the Bureau of Labor Statistics estimates the price of homeownership by “owner equivalent rent” – that is, the rent you would pay yourself to live in your own house. That in turn is estimated from rental data. If rents continue their nearly vertical trajectory, the whole shelter component of the Consumer Price Index will jump. Shelter accounts for about 40% of the CPI weightings.

Shelter, goods, and services – the major components of the Consumer Price Index – all are showing the highest rates of increase since the inflationary 1970s, and in some cases the highest in history. That means sustained inflation above 5% – and the eventual abandonment of the ultra-easy monetary policy that drove stock valuations to a record during the past year.

Inflation already appears to have cut into growth. The Automatic Data Processing numbers for US employment released Wednesday morning show a distinct downshift in employment growth in the midst of what is supposed to be a recovery from the Covid-19 recession.

As input costs rise faster than the prices businesses can charge for goods and services, they must accept lower margins or shrink output.