03 Jul 2023 1 min read

Chart of the month: what we talk about when we talk about inflation

By Christopher Teschmacher

Continued tightness in the labour market has led to sticky inflation in less scalable parts of the services sector. 


US inflation is off its peak, but is easing at a slower pace than the Federal Reserve (Fed) had been expecting. In our latest Chart of the Month, we take out the magnifying glass and break inflation down into 132 sub-components, and then regroup them into three categories aligned to their pre-pandemic inflationary trends.

What we find is that components that were getting cheaper pre-pandemic, such as mass-produced homewares, books and basic electronics, are likely to soon resume a deflationary trend. That makes sense as the disruption to production and supply chains from COVID is now behind is.

Mild inflation components, including some luxury goods and scalable service sector areas, also bounced higher in the pandemic but again are showing some deceleration in the rate of inflation.

But it’s the less scalable service sectors with already strong inflation trends pre-pandemic that are the most worrying today: healthcare, education, maintenance, eating out. There is no easing of inflation here, with it still rising at over 6% year-on-year, on average.

If that persists, the Fed will feel the pressure to continue rate hikes. We believe that a recession is still ahead of us and could be a necessary release valve for the tight labour market that is driving inflation in these components higher. 

Christopher Teschmacher

Fund Manager

Chris is something of a perfectionist which may explain the raft of automated spreadsheets ensuring charts are properly formatted to Teschmacher® standards. Having become the resident quiz master, he keeps his colleagues on their toes with a steady stream of investment trivia. This worldly Dutchman has wanderlust in his blood – he was born in Australia and has lived in London, New York and Paris. He has since settled in London with his young family, although regular trips to the South of France suggest that ambitions to become a vineyard owner are still strong.

Christopher Teschmacher