August CPI shows inflation’s sticky in services
Two and a half percent. That’s how much inflation we’ve seen in this economy over the past 12 months, according to the August consumer price index, which the Bureau of Labor Statistics published Wednesday.
Prices were up 0.2% from a month earlier, the smallest increase in more than 3½ years. Another bright spot in Wednesday’s inflation report: Energy prices fell by 0.8%. You can thank low oil prices for that — Brent crude dipped below $70 a barrel this week for the first time since 2021.
But to take the glass-half-empty view of the data, 2.5% is still half a percentage point shy of the Federal Reserve’s 2% inflation target.
The parts of the economy where inflation is taking a while to come down are in the services sector. For instance, inflation actually picked up last month in the food away from home category.
“Which reflects what? Well, that’s, like, restaurants. And what’s a big component of restaurant costs is labor costs,” said Menzie Chinn, an economics professor at the University of Wisconsin.
He said yeah, the labor market has cooled off recently, but wages are still up there. Especially in service-sector categories, including the food industry.
“It’s good to have wages rising. You know, that’s going to feed in, possibly, into costs that are passed on to the consumer,” he said.
Another service-sector category with sticky prices? Motor vehicle insurance.
Michael Pugliese, a senior economist at Wells Fargo, said you can think of that as an echo of the sticker price inflation we saw early in the pandemic.
“As that receded, you started to see the insurance side of things, as people got back out into the world and resumed driving. It’s taken time for that to filter through, right? It’s not like it’s an instantaneous thing,” he said.
That echo effect could also be keeping travel prices high — the BLS’ airfare index rose almost 4% from July to August.
Anne Villamil, an economics professor at the University of Iowa, said we’re still feeling the effects of all that revenge spending that occurred later in the pandemic.
“People just said, ‘I want to be able to go out and do things.’ So we’ve seen big increases in the demand for airfare and hotels,” she said.
That said, a lot of this sticky inflation is still trending down. One big example is the cost of housing. “Housing just moves really, really slowly,” said Laura Veldkamp, an economics professor at Columbia University.
She said the reason housing prices look high is that the rents people are paying now are based on leases that were signed a while ago. “So part of what we’re picking up were the price increases that were decided on earlier in the year,” she said.
At a time when inflation was higher than it is right now.
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