The stubborn half of inflation

Central bank press conferences in 2026 keep returning to the same awkward sentence: goods disinflation has essentially completed, but services inflation remains elevated. It sounds like technocratic hedging. It is actually one of the most important economic shifts of the decade, and it affects your life in ways the headline CPI number hides.

Here is what the single CPI number conceals:

If inflation is running at roughly 3% in 2026, the composition matters more than the headline. Shelter and service categories together contribute 62% of the total — and shelter alone contributes 38%. Goods (durable and non-durable combined) contribute 10%. Energy 10%. Food 18%.

The practical implication for your household: the thing inflation takes from you is almost entirely housing, healthcare, and education. Everything that comes out of a factory — cars, appliances, clothes, electronics — is either flat or deflating. That pattern reverses what households lived through for most of the 2010s and it reverses again the calculations you would make to keep your living standard constant.

For a business, the implication is different. If you sell a service (consulting, software, healthcare, education, financial advice, construction, legal, home services) — your pricing power is structurally higher in 2026 than it was pre-pandemic. Service inflation of 4.5–5% per year means your list-price increases at 4% are not aggressive. They are below the market.

If you sell a good — especially a durable good — your pricing power is structurally lower. Global overcapacity in manufacturing, concentrated largely in Asia, has created a decade-long disinflationary force on anything that can be containerised. Your only defences are brand, channel, and category design. "We will raise prices to keep up with inflation" is not a strategy when the inflation is not happening in your category.

Why is services inflation so stubborn?

Three compounding reasons. First, the wage floor for service workers rose sharply between 2021 and 2024 and has not reversed — the labour-cost base for restaurants, retail, hospitality, and healthcare support is permanently higher. Second, shelter costs follow home prices with a two-year lag, and home prices peaked in mid-2024 for most US metros but are still flowing through rents. Third, and most under-discussed, healthcare administrative costs in the US have continued their two-decade creep regardless of macro conditions — every year healthcare services add roughly 5% to their own sub-index, and it does not vary with recessions.

What do you do about it?

Three moves worth considering.

First, if you have a mortgage you locked in at 3% or below, do not refinance. Keep it. The spread between your locked rate and the going rate is the single most valuable fixed-income position most households will ever hold.

Second, if you are paying list price for services — especially medical and educational — negotiate or shop around. The quiet secret of the 2020s service economy is that list prices have widened their gap to effective prices. Everyone who asks, pays less.

Third, if you run a service business, raise your prices annually. Do it on the same day every year. Tell your clients in advance. The businesses that take 3–4% price every year perform meaningfully better than businesses that "wait until it hurts" and then ask for 15% once a decade.

Goods are normal again. Services are not. Pay attention to the difference.

— The Editor's Bureau