More than a year after the Federal Reserve unleashed a barrage of interest-rate hikes to tame inflation, price pressures are moderating, though not as quickly as policymakers would like. As recently as March, officials on the central bank’s rate-setting committee were forced to raise their outlook for core inflation, as measured by the personal consumption expenditures price index, this year to 3.6% from the 3.5% they’d projected back in December, underscoring how their 2% target remains elusive.
Economists continue to debate what’s keeping inflation high—or “sticky,” in professional parlance—even as borrowing costs have surged. The issue is that while prices for food, everyday household goods and energy have moderated, those for many services have continued to rise. Shelter, which amounts to about a third of the consumer price index, clocked a 0.6% increase in March, which was an improvement over the previous month. But costs for other services including air travel, education and car insurance continued to climb.
Many, including Fed Chair Jay Powell, trace the price pressures in services to an extraordinarily tight job market: Unemployment, at 3.5%, is close to the lowest it’s been in 50 years, and that puts upward pressure on wages.
