Services prices keep rising, buoying inflation, though goods level off

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  • Price increases for goods have moderated, but those for services are still rising, economists say.
  • This could keep inflation high longer, which could lead the Fed to keep raising rates.
  • Housing and medical services are among the top contributors to services inflation.

Don’t celebrate a win over inflation yet. Inflation in services hasn’t peaked yet, which could mean high inflation will be here for a while, economists say. 

The Fed’s preferred inflation gauge, the core personal consumption expenditures (PCE) price index that excludes the volatile food and energy sectors, has trended lower, falling to 4.6% in July from 5.3% in February.  

But transportation, recreation, accommodation and food services prices, which rose most last year, surged to more than 6% in July, Tyler Atkinson and Xiaoqing Zhou, economists at the Dallas Federal Reserve, said in a report. Those categories contributed 1.3 percentage points (or 31%) to overall core PCE services inflation, they estimated, and have room to add more as real spending in those areas has yet to return to pre-pandemic levels and tight labor markets push up wages in those labor-intensive sectors. 

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