Rising Interest in Service Prices Before US Inflation Index Release... "Core of Inflation"

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Seoyul] The core of inflation, according to the U.S. Federal Reserve (Fed), lies in service prices, drawing increased attention to this index.

On the 12th (local time), The Wall Street Journal (WSJ) reported that in order to tame inflation in the U.S., the labor market and wage growth must stabilize, leading to a focus on the price levels in the service sector, which has a large wage component.

This assessment comes ahead of the announcement of the U.S. Consumer Price Index (CPI) growth rate for December, noting that while goods prices have fallen in recent months, service prices continue to rise.

Recently, attempts have been made to examine 'supercore' inflation, a narrower measure than core inflation that excludes volatile energy and food prices.

Earlier, Fed Chair Jerome Powell stated in a November speech last year that other service prices well reflect upward pressure on core inflation. Powell said, "The other services sector covers a wide range including healthcare, education, barbering, and lodging, with a high labor cost component in expenses," adding, "The key to understanding inflation in this sector lies in the labor market."

WSJ evaluated that Powell's remarks led the market to believe that the labor market is central to understanding the direction of inflation, and that the inflation figures themselves are less important.

However, WSJ also noted voices questioning the Fed's fundamental claim that a strong labor market inevitably drives up service sector inflation, thereby keeping overall inflation elevated.

Omar Sharif of the research firm Inflation Insights assessed that the cause of last year's rise in service prices includes a sharp increase in airline fares, partly stemming from rising oil prices.