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By Medora Lee<\/div><\/div>\n

Experts say that high prices could be around for a while because inflation in services like transportation, recreation, food services and more haven\u2019t peaked yet.<\/span><\/span><\/span><\/p>\n<\/div>\n

McLEAN, Va. \u2013 Don\u2019t celebrate a win over inflation yet. Inflation in services hasn\u2019t peaked yet, which could mean high prices will be here for a while, economists say.<\/span><\/span><\/span><\/p>\n

The Fed\u2019s preferred inflation gauge, the core personal consumption expenditures price index that excludes the volatile food and energy sectors, has trended lower, falling to 4.6% in July from 5.3% in February.<\/span><\/span><\/span><\/p>\n

But transportation, recreation, accommodation and food services prices, which rose the most last year, surged more than 6% in July, said\u00a0Tyler Atkinson\u00a0and\u00a0Xiaoqing Zhou, economists at the Dallas Federal Reserve, 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.<\/span><\/span><\/span><\/p>\n

\u201cThis implies that core PCE inflation \u2013 even if it has peaked due to declining goods inflation \u2013 is likely to fall slowly,\u201d the economists said.<\/span><\/span><\/span><\/p>\n

What service areas are adding most to inflation?<\/span><\/span><\/span><\/p>\n

Housing and medical services have significant weighting (around 15% and 18%, respectively) in calculating PCE, and are still seeing fast-rising prices.<\/span><\/span><\/span><\/p>\n

Rent and the homeowners\u2019 equivalent to rent surged to 5.9% in July, from 2% in\u00a0May 2021, contributing 1.4 percentage points (or 32%) to core PCE services inflation and reflecting with a lag, surging house prices since mid-2020. The economists forecast housing can add another 35 basis points to headline PCE inflation and 40 basis points to core PCE inflation this year before easing in mid-2023 as these prices continue catching up to record home prices.<\/span><\/span><\/span><\/p>\n

Another source of likely further upward pressure on PCE inflation is health care services, led by wage growth among hospital workers. The economists expect health care will contribute 70 basis points to year-over-year core PCE inflation in the coming year, 32 basis points more than in second quarter 2022, all else equal.<\/span><\/span><\/span><\/p>\n

What does this ultimately mean for consumers?<\/span><\/span><\/span><\/p>\n

The Fed\u00a0will likely continue aggressively raising interest rates to cool demand, by discouraging borrowing and spending and slow inflation.<\/span><\/span><\/span><\/p>\n

The Fed\u00a0has already increased its short-term benchmark fed funds rate this year to 2.25% and 2.5%, from near zero. But with inflation still high, Fed Chair\u00a0Jerome Powell\u00a0has said rates will have to rise further and stay there for some time.<\/span><\/span><\/span><\/p>\n

Many economists predict the Fed will hike rates another 1.5% by year end.<\/span><\/span><\/span><\/p>\n

Although the Fed doesn\u2019t control consumer interest rates like those on home and auto loans or credit cards, its rate increases ripple through the economy and eventually consumers pay more. Last week, for example, the average credit card rate reached 17.96%, the highest since\u00a0January 1996, according to\u00a0<\/span>Bankrate.com<\/span><\/a>.<\/span><\/span><\/span><\/p>\n

With even higher rates ahead, consumers should try to pay off credit card debt.<\/span><\/span><\/span><\/p>\n

\u201cForget about chasing rewards,\u201d said\u00a0Ted Rossman, a\u00a0Bankrate\u00a0senior industry analyst.<\/span><\/span><\/span><\/p>\n

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\nAuthor: marlam<\/p>\n","protected":false},"excerpt":{"rendered":"