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Expand chart
Data: ISM; Chart: Axios Visuals

A spate of recent U.S. economic data releases suggest that inflation could be making a major comeback.

Driving the news: Thursday's report on the U.S. services sector for November from the Institute for Supply Management was slightly better than expected but still down from October's reading, however, the bigger story was in the prices paid index.

What happened: Prices paid jumped to its highest level since early 2012, rising for the second straight month and coming in above 60 for the third month in four and fourth month in six.

  • Prior to June, the prices paid index hadn't risen above 60 since November 2018.
  • The increase in services prices has come in concert with increasing manufacturing prices. ISM's manufacturing prices paid index has been above 60 for each of the past three months (October through December) after not hitting 60 since December 2018.
  • A reading above 50 indicates that prices are increasing.

Why it matters: A return of inflation would put the U.S. economy in a precarious position, especially with the renewed rise in COVID-19 diagnoses and the still weak job market.

  • The Fed is holding interest rates down to help spur economic activity but could be forced to choose between the need to rein in inflation and the need to assist the economy.

Yes, but: Some economists have been incredulous about rising inflation, given the deflationary impact of the coronavirus pandemic.

  • "Just a reminder that one off shifts in prices (goods vs services >> services vs goods) do not an inflation process make," MacroPolicy Perspectives president Julia Coronado wrote on Twitter.
  • "Inflation is steady increases in a broad set of prices underpinned by steady gains in consumer purchasing power. Thank you for coming to my Ted talk..."

Yes, but, but: Closely followed inflation metrics are reacting just the same — 5-year, 10-year and 30-year breakeven inflation rates have climbed all week, hitting fresh highs every day since Tuesday that date back to May 2019.

  • The 5-year, 5-year forward inflation expectation rate rose to 1.94% Thursday, the highest its been since July 2019.

Go deeper

Fed chair says low interest rates aren't driving stock market prices

Jerome Powell. Photo: ANDREW CABALLERO-REYNOLDS / Getty Images

Federal Reserve chairman Jerome Powell told reporters on Wednesday that rock-bottom interest rates aren't playing a role in driving stock prices higher, while noting that vulnerabilities to the financial system are "moderate."

Why it matters: The statement comes amid unshakeable stock prices and a Reddit-fueled market frenzy — prompting widespread fears of a bubble and the role monetary policy has played in that.

Dion Rabouin, author of Markets
Jan 28, 2021 - Economy & Business

U.S. indexes see worst day since October amid short squeeze chaos

Photo: Angela Weiss/AFP via Getty Images

Equity prices tumbled Wednesday, with U.S. indexes booking their worst day since October, but traditional hedging assets like Treasury bonds, the Japanese yen and gold saw minimal gains or losses, continuing a trend that has been in place for more than a year.

By the numbers: The S&P, Dow and Nasdaq all fell by more than 2%, but the benchmark 10-year U.S. Treasury yield declined by just 1 basis point from its closing level on Tuesday.

Dan Primack, author of Pro Rata
21 mins ago - Politics & Policy

Biden starts negotiating to raise capital gains tax rate

Illustration: Aïda Amer/Axios

President Biden wants to nearly double the capital gains tax paid by wealthy Americans, as first reported yesterday by Bloomberg and confirmed by Axios.

Counterintuitive: Biden's plan is better for private fund managers (hedge, PE, VC, etc.) than what he proposed during the campaign.

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