Services inflation is tough to stamp out, and it has taken over inflation. Powell will be talking about it. By Wolf Richter for WOLF STREET. The different components of the PCE price index is what the Fed holds up when it details its reasoning behind its crackdown on inflation. They include overall PCE but particularly core PCE (which excludes the volatile food and energy components) and more recently, services PCE, which is where inflation has now solidly moved to, and from where it is very difficult to dislodge. On a monthly basis, driven by price increases in services, both the core PCE and the services PCE re-accelerated in December. On a year-over-year basis, the services PCE remains near its multi-decade high. The PCE price index for services jumped 0.5% in December from November, the biggest jump since September, according to the Bureau of Economic Analysis today. There is no indication here that services PCE is backing off or has reached a turning point in the uptrend, or whatever. Services inflation has become a horror show. On a year-over-year basis, the PCE Price Index for services rose 5.1%, same as in November. It has now been above 5% for the fifth month in a row, and is not showing any signs of a decline. This confirms the CPI for services, released on January 12, which spiked to a new four-decade high. This recalcitrant inflation in services is a source of frustration for the Fed’s crackdown on inflation—and it keeps featuring in Powell’s comments. But commodity prices are falling. The PCE price index for durable goods – new and used vehicles, appliances, furniture, etc. – declined by 0.3% for the month, the third month in a row of month-to-month declines, but the decline decelerated from the prior month (-0.8%). The PCE price index for energy plunged by 5.1% for the month, having now plunged five of the past six months. Year-over-year, the Energy Index is down 8.3%. The PCE price for food prices slowed to an increase of 0.2% for the month, but it is still up 10.6% year-over-year. The PCE price index for goods overall plunged by 0.7% for the month: Year-over-year, the PCE price index for goods has been getting whittled down by the month-to-month declines. In December, it was up only 4.6% from a year ago, the lowest year-over-year rise since May 2021: So we can see what is happening here with inflation: Goods inflation is back off, with some goods components falling sharply, But services inflation is raging and not cooling off at all. Core PCE re-accelerates. On a month-to-month basis, the core PCE, which excludes food and energy, rose 0.3% in December, up from 0.2% in November. This kind of reversal is exactly what Powell warned about when he said that “down months in the data have often been followed by renewed increases.” Sure enough: On a year-over-year basis, the core PCE price index rose 4.4%, down from 4.7% in November, driven by the decline in durable goods inflation that is still out-powering the red-hot services inflation: Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how: Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.