Core Services Inflation Spikes to 22-Year High, Fueling Debate Over Rate Hikes

Core services inflation spiked to 7.15% annualized in January, the worst month-to-month jump in 22 years. Contributing factors were housing, financial services, food services, and other services.

Fed governors have said inflation needs a wait-and-see approach before considering rate cuts, given the stubborn core services inflation. Some are discussing potential future rate hikes again.

Housing inflation remains hot, stuck around 5.5%+ and not cooling as expected. Other categories seeing high inflation include financial services, food, and recreation services.

Core services inflation has historically created head fakes that caused premature Fed easing, followed by rate spikes when inflation rebounded.

Factors like strong growth, tight labor market, rising prices and wages suggest the Fed will be fighting inflation most of 2024, keeping yields high.