{"id":514012,"date":"2026-06-27T17:14:41","date_gmt":"2026-06-27T17:14:41","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/514012\/"},"modified":"2026-06-27T17:14:41","modified_gmt":"2026-06-27T17:14:41","slug":"inflation-in-core-services-surges-plus-ais-impact-on-electricity-goods-inflation-beyond-gasoline","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/514012\/","title":{"rendered":"Inflation in \u201cCore Services\u201d Surges, plus AI\u2019s Impact on Electricity & Goods: Inflation beyond Gasoline"},"content":{"rendered":"

\t\t The 6-Month \u201ccore services\u201d PCE price index jumped 4.2% annualized, pushed the 6-month core PCE to 4.1%, worst since June 2023.
\nBy\u00a0Wolf Richter<\/a>\u00a0for\u00a0WOLF STREET<\/a>.<\/p>\n

The price of gasoline was still a big driver of inflation in May, though in recent weeks, gasoline prices have dropped as crude oil prices have plunged, and gasoline will slowly fade as a source of inflation. But inflation in core services, which account for over 60% of where consumers spend their money, is reheating. And this time, it\u2019s not driven by housing services, but by other services. Core services are the biggie, and that\u2019s were inflation beyond energy has been reheating. The Fed has some reason to \u201clook through\u201d the energy price spike, but it cannot \u201clook through\u201d the surge of inflation in core services.<\/p>\n

The \u201ccore services\u201d PCE price index jumped by 0.46% in May from April (+5.6% annualized, blue in the chart below).\u00a0The six-month core services PCE price index jumped by 4.2% annualized, the worst since June 2024 (red).<\/p>\n

Core services dominate consumer spending, and that\u2019s where inflation has been accelerating for a year, after coming down from the surge in 2021 through early 2023. Core services are where inflation is tough to battle. A lot of these core services lack adequate competition that consumers can leverage, and once companies that sell these services are confident they have pricing power, they raise their prices, and consumers wail and gnash their teeth and pay them.<\/p>\n

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Year-over-year, inflation in core services rose by 3.7%, the worst increase since February 2025.<\/p>\n

\"\"<\/p>\n

The core PCE price index \u2013 which excludes energy and food, and thereby excludes the spike in gasoline prices \u2013 rose by 0.32% in May from April (3.86% annualized, blue in the chart below).<\/p>\n

The six-month core PCE price index, which shows the recent trends, accelerated to 4.1%, the worst since June 2023, and that\u2019s without the energy price spike. It was primarily driven by the surge of inflation in \u201ccore services,\u201d which dominate consumer spending; and secondarily, by increases in some goods categories \u2014 more in a moment.<\/p>\n

\"\"<\/p>\n

The year-over-year core PCE price index rose by 3.4% in May, the worst since July 2023.<\/p>\n

The Fed uses the core PCE price index as one of the yardsticks for its 2% inflation target (dotted purple line), the yardstick that allows the Fed to \u201clook through\u201d the energy price spike as food and energy prices are not included in this index.<\/p>\n

It has been above the Fed\u2019s 2% target since March 2021 (over five years!), and never got even close to the Fed\u2019s 2% target, but bottomed out at 2.6% in April 2025 and has been moving away from the target ever since.<\/p>\n

\"\"<\/p>\n

The all-items PCE price index \u2013 the other inflation index used by the Fed as its inflation yardstick \u2013 jumped by 0.45% in May from April (+5.5% annualized, blue line in the chart below).<\/p>\n

Year-over-year, the PCE price index jumped by 4.1%, the worst since April 2023 (red line).<\/p>\n

By this measure, inflation is now over double the Fed\u2019s inflation target of 2% (dotted purple line). It has been moving away from the Fed\u2019s target since May 2025, with big month-to-month surges in the months prior to the war in Iran.<\/p>\n

\"\"<\/p>\n

The energy PCE price index\u00a0jumped by 4.0% in May from April (60% annualized) on top of the spikes in the prior months.<\/p>\n

This pushed the year-over-year increase to +24.3%, up from a negative reading in February.<\/p>\n

Prices of motor fuels have been declining in recent weeks, and that will be reflected in the PCE price index going forward.<\/p>\n

But electricity costs have been surging \u2013 and those prices are highly regulated \u2013 and those price surges have been driven by demand growth from AI data centers, and that\u2019s a structural inflation issue.<\/p>\n

This chart shows the price level, not the year-over-year percentage change.<\/p>\n

\"\"<\/p>\n

Durable goods prices\u00a0dipped month to month by a hair, but were up 3.3% year-over-year, driven by massive spikes in four categories:<\/p>\n

Information processing equipment (laptops, PCs, tablets, accessories, and software that comes with them spiked by 10.2% year-over-year, driven by the price pressures on semiconductors from the AI investment boom, and also driven by software whose subscriptions got jacked up because AI is now included in them \u2013 the inflationary AI boom.
\nJewelry prices spiked by 22% year-over-year, as the earlier price spike of gold gets passed on.
\nVideo, audio, photographic, information processing equipment and media spiked by 8.3% year-over-year, on price surges in semiconductors.
\nGlassware, tableware, and household utensils are where some of the tariffs were successfully passed on: prices spiked by 14.6% year-over-year.<\/p>\n

Many other major categories had year-over-year declines, were unchanged, or had only small increases, such as new and used behicles.<\/p>\n

\"\"<\/p>\n

Food prices\u00a0inched up a hair in May from April and rose 2.4% year-over-year.<\/p>\n

\"\"<\/p>\n

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the mug to find out how:<\/p>\n

\n\"\"<\/a>\n<\/p>\n

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