Service Prices Hit a Four-Year High as Paychecks Lag

NEW YORK, Tuesday, Oct. 6, 2026. American service businesses are paying more for what they buy than at any point in more than four years, and a growing share of them say they can no longer swallow it. The Institute for Supply Management's September Services PMI report, released Monday, Oct. 5, put its Prices Index at 74.0, up from 72.6 in August and the highest reading since July 2022, when it reached 74.5. Seventeen industries reported paying higher prices. None reported a decrease.

That is the business half of the affordability squeeze. The household half looks thinner. Average hourly earnings in the Bureau of Labor Statistics' September jobs report, published Friday, Oct. 2, were up 3.0% from a year earlier, down from 3.1% in August, Reuters reported. The latest consumer price index, covering August and released Sept. 11, showed prices up 3.4% over 12 months, according to CNBC's breakdown of the BLS data. That compares September wages with August prices, because September's CPI is not out yet. On that basis, pay trails prices by about 0.4 percentage point. The September CPI is due Wednesday, Oct. 14, on the BLS release calendar.

Fuel Dominates the Purchasing Managers' Complaints

ISM survey chair Steve Miller said fuel costs were mentioned twice as often as any other single issue affecting performance, with tariffs the other most cited supply chain problem. One retail respondent told ISM that "shipping containers from overseas are double the cost, causing price increases." A farm-sector respondent said diesel had "increased the cost of freight dramatically."

Pump prices released the same day show both the relief and its limits. GasBuddy's weekly report on Oct. 5 put the national gasoline average at $4.30 a gallon. That was 12.5 cents lower than a week earlier but 19.3 cents higher than a month ago and $1.22 above a year ago. Diesel fell 14.2 cents to $6.307. Patrick De Haan, GasBuddy's head of petroleum analysis, said refineries behind the Strait of Hormuz "are not yet fully able to move products through," which keeps fuel expensive relative to crude. TradeFlock has tracked what that means for trucking since diesel prices set a record in late September and diesel costs hit a $6.31 record, and what it means for shoppers in Affirm CEO Max Levchin's warning on gas prices.

PNC economist Kurt Rankin read the ISM numbers the same way. In a PNC Economics note dated Oct. 5, he wrote that survey responses "point to a waning ability or willingness among services businesses to absorb higher costs without passthrough to consumers." Finance chiefs should circle that sentence. Pass-through is the point where a supplier's invoice becomes a customer's inflation.

Hiring Holds Up While Job Security Slips

The labor picture is mixed rather than weak. ISM's services employment index rose to 50.1 from 47.8, its first reading above 50 in three months. But The Conference Board's Employment Trends Index, also released Oct. 5, fell to 107.56 from 108.08. The share of consumers who say jobs are "hard to get" rose to 21.9% from 20.3%. The share of small firms with positions they could not fill dropped to 32% from 35%, and involuntary part-timers rose to 16.5% of all part-time workers from 16.2%.

None of that gives workers much leverage to demand raises that keep up with prices. In the Oct. 2 jobs report, September payrolls grew by just 29,000 and unemployment rose to 4.2%, as TradeFlock reported in its September jobs report coverage. Weak bargaining power and sticky prices produce the squeeze TradeFlock flagged when inflation outpaced wage growth in August.

Households were already saying so last month. The University of Michigan's final September survey, published last month, put consumer sentiment at 48.1, down from 51.7 in August, and year-ahead inflation expectations at 4.6%, up from 4.0%.

Rent Is the One Bill Giving Ground

Housing is the exception. Apartment List's national rent report, published Sept. 29, put the September median rent at $1,388, down 0.4% from a year earlier, with the multifamily vacancy rate at 7%. That is real relief for tenants, though Apartment List says annual rent growth has now risen for five straight months. The strain is also moving up the income ladder, as TradeFlock found in its look at rental affordability for middle-income families.

Tariffs may be fading as a driver of inflation, even if not of prices. New York Fed economists Mary Amiti and Sebastian Heise, with Columbia's David Weinstein, wrote on Liberty Street Economics on Tuesday, Oct. 6 that tariffs' contribution to 12-month consumer goods inflation peaked at 2.9 percentage points in February 2026 and was forecast to fall to around zero by August 2026. The level stays elevated. They estimate a 10% tariff on all imports leaves consumer goods prices 2.6% higher after a year.

Why the October Fed Meeting Is Back in Question

The Federal Reserve raised its target range by a quarter point to 3.75% to 4.00% on Sept. 16, according to the FOMC statement, its first hike in three years, as Reuters noted and TradeFlock reported at the time. Policymakers meet again on Oct. 27 and 28.

On Monday, financial markets were pricing roughly a 26% chance of an October hike, down from about 71% the week before, according to CME Group's FedWatch tool as cited by Reuters on Oct. 5. Reuters attributed the drop to cooler July and August inflation readings and the September payroll slowdown. The services price data pull the other way. "The prices index continues to trend markedly higher, and the uptick in supply chain stress and backlog of new orders suggest price pressures are building," Matthew Martin, senior US economist at Oxford Economics, told Reuters. PNC expects two more quarter-point hikes through early 2027.

The Margin Math for the Fourth Quarter

For companies, the practical read is narrower than the headlines. Fuel and freight costs are rising faster than customers' paychecks, which leaves less room for price increases at the register just as suppliers push theirs through. Freight-dependent distributors and farm suppliers face the hardest arithmetic this quarter. Retailers setting holiday prices will not know whether the 0.4-point gap between September pay and August prices is closing until Oct. 14. Borrowing costs add a second squeeze. A construction respondent told ISM that "half of buyers walking through the door cannot qualify to purchase."

The next test arrives in eight days. If September CPI confirms what purchasing managers reported on Monday, an October hike comes back into play. If it does not, the Fed can wait for December, and businesses keep absorbing the difference.

Cover photo: A gas pump price display, by fr0ggy5 (@fr0ggy5_) on Unsplash, used under the Unsplash License.