A key gauge of services inflation touted by Federal Reserve Chair Jerome Powell is set for a surge in figures due Thursday, almost entirely due the recent run-up in the stock market.
Prices of services excluding housing and energy, a category Powell flagged in his Aug. 25 Jackson Hole speech, may have risen as much as 0.5% in July, following more moderate 0.2% increases in each of the prior two months, according to forecasters including Omair Sharif of Inflation Insights LLC and Skanda Amarnath at Employ America.
For Sharif, the risk is that the acceleration in the so-called nonhousing services gauge “would underscore that the inflation path will remain bumpy and that Fed officials can’t yet have confidence that inflation will sustainably move lower to their target, especially in the part of the PCE basket that they are most closely watching,” he said Wednesday in a note to clients.
In his Jackson Hole speech, Powell called the recent moderation “encouraging,” though he tied lingering inflation in the category to tight labor markets, given the labor-intensive nature of many services that comprise the basket, and indicated “some further progress here will be essential” to return inflation to the Fed’s 2% target.“Fed Chair Jerome Powell’s preferred inflation metric — ‘supercore’ PCE inflation — likely accelerated in July.
Analysts have a pretty good idea of what the portfolio management services category will show in Thursday’s report because it uses similar source data as a monthly Bureau of Labor Statistics report on producer prices published Aug. 11.
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