Bar chart showing the year-over-year change in goods Consumer Price Index inflation and services Consumer Price Index inflation from January 2020 to November 2023. Prior to April 2021, goods inflation was between 0% to 2% and lower than services inflation. Starting in April 2021, goods inflation moved sharply higher and far above the services inflation. Goods inflation peaked in early 2022 and has moderated since, returning closer to 2020 levels. Meanwhile services inflation had been steadily increasing since mid-2021, until it began to decline slowly beginning in April 2023. Services inflation remains elevated above 2020 levels.
Area chart showing components of U.S. Personal Consumption Expenditures from January 1959 to November 2023. The chart shows the share of total PCE for each component (energy, food, goods, and services). Since 1959, the services component has grown to make up more than 60% of PCE, while energy, goods, and food as a percentage of PCE have come down.
Sources: Bloomberg, Bureau of Economic Analysis, U.S. Census Bureau, and Wells Fargo Investment Institute. Goods and Services Consumer Price Index (CPI) inflation: monthly data from January 1, 2020 to November 30, 2023. PCE components: monthly data from January 1, 1959 to November 30, 2023. PCE (personal consumption expenditure) tracks overall price changes for goods and services purchased by consumers. Services and all goods spending data is adjusted for inflation.
Key Takeaways
- Over the past four decades, the services component has become an increasingly large portion of U.S. CPI inflation. Spending rotated from goods to pent-up services demand as the economy has recovered from the worst of the pandemic.
- Ongoing labor shortages have combined with increased demand for travel, entertainment, and other economically sensitive services to keep inflation elevated, even as improving supply chains and soft demand have suppressed goods-price increases.