Wall Street Journal (07/12/15) Kathleen Madigan

Despite the U.S. Federal Reserve’s concerns about inflation being below its target for the last three years, consumers are seeing the costs of services rise every year. The overall inflation rate has held steady at less than 2% per year, but while goods prices dropped 3.3%, including food and energy, during the year-to-year period ended in May, service prices climbed 2%.

Experts attribute much of the gain in service inflation to an increase in rents, but service prices outside of rents are rising as well, which could suggest that the domestic economy has less excess capacity and labor-market slack than assumed. Service providers have more pricing power than goods producers due to lack of global competition, rising labor costs, and slower productivity, among other factors. “Wage pressure will show up first in the service category,” says Rajeev Dhawan, an economics professor at Georgia State University.