At this salon, services inflation is proving hard to trim

But in lifting prices, Headcase Hair is not alone. In the year to September 30, the average price of hairdressing and personal grooming services increased by 6.7 per cent as input costs, largely wages, put margins under pressure.

The quarterly pace of growth moderated from 2.2 per cent to just 1 per cent in the three months to September 30, a positive sign, but services inflation, which is closely watched by the Reserve Bank of Australia, is proving sticky.

Underlying services inflation, which is heavily influenced by labour costs, rose 1.6 per cent quarter-on-quarter. On an annualised basis the rise is 6.7 per cent, the same as the year-end result to the end of the same quarter.

“[This is] indicative of no progress on disinflation in this part of the basket,” NAB senior economist Taylor Nugent said. In simple terms, price increases for services remained too high.

Services risking rate rise

“NAB continues to expect the RBA to hike in November and expect the RBA will retain a hiking bias when they do,” he added, which would take the official interest rate to 4.35 per cent, the highest since April 2012.

Cautious about linking wage sensitive services inflation to the challenge Australia faces, Treasurer Jim Chalmers largely dismissed the role played by services in Wednesday’s data, saying it wasn’t “a big part of [the] story”.

Mr Pulitano opened Headcase Hair with Vincent Nobile in 1997 and in the 26 years since has built a loyal clientele. When he announced prices would go up from November 1, most were understanding.

“We haven’t had much negative feedback at all,” he said, though the salon’s price tiers allow people to get the same haircut at a similar or lower price if they’re willing to use a less experienced hairdresser.

Michael Blythe, chief economist at PinPoint Macro Analytics, said there was clear evidence consumers were responding to cost of living pressures by switching to cheaper products and services.

Not far from Paddington in Double Bay, well-known hairdresser Joh Bailey opted to absorb what he estimated was a 5 per cent to 7 per cent increase in the cost of hair products and electricity over the past year.

While Mr Bailey concedes his business isn’t your usual hair dressing salon – his staff work on commission, for start – he does believe how people think about a haircut or manicure has changed over the past 20 years.

“Having a new hair do gives you the same feeling of confidence and lift without the price of a new dress, a pair of shows or handbag,“he said. “You get more bang for your buck.”