Why services inflation is stickier than goods inflation
Why services inflation is stickier than goods inflation
In addition to consumer spending, the personal consumption expenditures index also looks at how much prices rose for both goods and services. The Federal Reserve’s interest rate hikes have been helping to slow down inflation, at least for goods, but slowing down inflation for services is a little trickier.
The Federal Reserve’s interest rate hikes have caused a lot of people to put off big purchases they might have to finance, like a new appliance.
People are still spending plenty of money on cheaper, everyday services though — like a haircut or dinner at a restaurant.
“And I’m going to keep eating dinner no matter what Jay Powell does with interest rates,” said Justin Wolfers at the University of Michigan.
Another reason that services inflation has stayed high is because those prices are heavily influenced by wages, Wolfers added.
“Going to the hairdresser — it doesn’t matter what happens to the price of oil, the price of lumber, or the price of eggs. The most important cost for a hairdresser is labor,” he said.
The labor market has started to loosen up. For instance, the number of job postings and quits has been trending down.
But even if the increase in wages is moderating, “it’s still at the moment, on a 12-month basis, faster than inflation,” noted Menzie Chinn at the University of Wisconsin.
And that could put pressure on the Federal Reserve to keep interest rates higher for longer.
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