Inflation in services - the sector hit hardest by the pandemic and slowest to recover - is finally catching up.

When consumer price index (CPI)-based inflation registered an eight-year high this April, on the back of an all-round rise in commodity, food and fuel prices, services inflation was still sedate.

But of late, it is beginning to tick up too. We compared granular CPI inflation data for services in the past six months (November 2021-April 2022) with the two years of the pandemic (fiscals 2021 and 2022), and the pre-pandemic average (fiscals 2016-2020).

We discern the following trends:

• Low inflation in a few large essential services is keeping overall services inflation subdued
• However, prices of discretionary services are rising
• The rise has been sharper in services catering to the upper income segments of population
• Transportation-related services have seen the sharpest rise in the past six months, due to fuel price spikes

The demand recovery we are seeing this fiscal will only further drive the generalisation of inflationary pressure across other service segments. That, alongside surging costs, will push producers to pass on the price rise to consumers.