By Konrad Putzier
Camp Bow Wow in downtown Nashville, a dog daycare, in January raised its daily rate to $36 from $33, a 9% increase. Instead of losing customers, though, the Nashville location of Camp Bow Wow recently broke its daily record by hosting 206 dogs.
"I don't think anybody even complained" about the prices, said owner Steve Lassiter.
Robust spending is driving up prices of services from haircuts to healthcare, a dynamic that is now taking center stage in the Federal Reserve's fight against inflation.
Over the past year, the spotlight has been on the rising price of goods during a year of on-again off-again tariffs, and more recently on the rising price of gasoline because of the U.S. and Israel's war with Iran. Yet the rising price of services is a big part of why the inflation rate has stayed above the Fed's 2% target.
Economists say prices of services keep rising because consumers still have plenty of cash. Real wages are up and unemployment is low. Rising stock prices over the past few years have made wealthy Americans wealthier.
Because high-income households generally spend a relatively big share of their earnings on services such as airplane tickets and restaurant meals, services inflation has stayed elevated, said Eugenio Aleman, chief economist at Raymond James.
Services also play a bigger role in the consumer economy: Businesses that provide services now occupy more retail space than stores selling goods.
Another potential factor: the loss of new immigrants, a major source of labor in the service economy. Some economists say the crackdown on immigration leaves businesses with fewer potential workers, forcing them to push up wages for remaining workers.
"When deportation effects fully materialize, labor shortages in migrant-dependent sectors will intensify, forcing wage increases that feed into services inflation," Peter Orszag, CEO of investment bank Lazard, and Adam Posen, president of the Peterson Institute for International Economics, wrote in January.
At the downtown Nashville Camp Bow Wow, the higher prices went straight into pay raises for the facility's two dozen employees. Lassiter said he dislikes raising prices, but felt he had no choice. "We can't afford to lose our staff," he said.
The high cost of groceries, gas and rent in the Nashville area meant many employees struggled to make ends meet, and he worried that some would jump ship to nearby fast-food restaurants offering higher hourly pay. "It's just gotten so expensive to live in Nashville," he said.
Workers overseeing hordes of dogs now make $17 per hour, up from $15 before. Aside from daycare, the location offers dog boarding and grooming. Lassiter said he spends around $85,000 a month on payroll, almost half his revenue. "We have to have a lot of dogs" to pay for that, Lassiter said. And that isn't his only headache: His property-tax bill recently doubled and his rent rises 5% each year.
In February, services prices excluding housing rose by 3.3% from a year earlier, a slightly slower pace than in prior months. In the 2010s, the annual rate averaged 2.1%. Last week, Fed Chair Jerome Powell said it is "frustrating" that services inflation, excluding housing, remains too high. "We're not seeing progress there," he said.
Prices of pet services and delivery services rose by 7.3% and 7.1%, respectively. The cost of haircuts, dry cleaning and internet services also rose faster than overall inflation.
Above-target price increases and a weak labor market put the Fed in a tight spot. The recent drop in hiring normally calls for lower interest rates, but that is risky while inflation is still high. On Wednesday, the central bank voted to keep rates unchanged. "We're in a difficult situation," Powell said.
Healthcare has been a particular concern. The cost of hospital and related services rose 7.6% in February from a year earlier and dental services were up 6.5%.
The expiration last year of Affordable Care Act tax credits and stricter enrollment rules under President Trump's megabill mean more consumers are likely to feel the sting. Premiums for health insurance through the Act's marketplaces rose 21.7% this year from 2025, according to a study by the think tank Urban Institute -- a much faster increase than in prior years. Driving the increase are the expiring credits, uncertainty facing insurers and rising healthcare costs, the study's co-author John Holahan said.
By raising energy costs, the Iran war could push up the price of services such as transportation, said Atsi Sheth, chief credit officer at Moody's Ratings. At the same time, the risk of runaway inflation similar to 2021 and 2022 is low, she said. Many lower- and middle-income households are feeling the strain after years of rising expenses. That puts a limit on how much businesses can raise prices.
The wealthy are still spending, but the recent drop in share prices amid the Iran war could help ease that source of inflationary pressure, said Aleman, the Raymond James economist. "The stock market is doing its part right now," he said.
Kristen Kukta, 42 years old, a Camp Bow Wow customer, took the price increase in stride. The cost of food, fish oil and veterinary care for her two golden retrievers, Chloe and Dr. Bogart Jones, keeps rising.
Kukta, who runs a marketing company and a supplement brand, makes six figures a year and her income is up considerably since 2019, although it has slowed slightly this year. She has cut back on restaurant meals and nail salon visits, which have become more expensive in recent years. "What's crazy to me is I make more money than I've ever made," she said, "and it's still kind of tight."
But Kukta won't cut back on care for her pets. Cancer treatments for her dog Dr. Indiana Jones, who died last year, cost over $30,000. Compared with that, paying a few dollars more for daycare doesn't seem so bad. "I've been coming here for almost 12 years," she said. "You can just tell the owners really love animals."
Write to Konrad Putzier at konrad.putzier@wsj.com
(END) Dow Jones Newswires
March 23, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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