Why your cell phone bill is getting so expensive — and how that helped persuade the Fed to raise rates

Millions of Americans recently received unwelcome news about their cell phone bills. 

In late July, T-Mobile said it was retiring over 1,000 older plans, shifting customers to newer offerings at an added cost of as much as $6 per line per month. And starting Aug. 5, AT&T hiked rates on some of its older plans by $10 to $20 and increased a monthly per-line fee by $1. 

The changes contributed to a steep 5.9% jump in Americans’ wireless bills from July to August alone, according to Consumer Price Index data. It was the largest single-month jump since the Bureau of Labor Statistics began tracking the category nearly two decades ago. 

In a twist, last month’s rising phone bills may have helped convince the Federal Reserve to implement its first interest rate hike in three years. The steep price jump in that category likely contributed about 10 basis points of August’s 0.3% month-over-month rise in core consumer prices, according to Wall Street analysts. The hotter-than-expected jump in this category, which strips out the price changes of the particularly volatile food and energy sector, helped cement expectations for the Fed’s 25 basis-point hike to benchmark rates on Wednesday. 

Consumers are seeing higher cell phone bills now for a variety of reasons: Wireless companies are spending billions to build out their vast 5G networks, and also seeking to pass growing regulatory costs onto consumers. Carrier spending on new sites and expanded network capacity topped $30 billion last year, according to CTIA, an industry trade group. 

Ultimately, though, the latest moves are also consistent with wireless companies’ strategies, said Lauren Hannula, managing editor of WhistleOut, a comparison shopping platform for phone and internet plans. The Big 3 carriers – Verizon, AT&T, and T-Mobile — have repeatedly emphasized that they aim to boost how much money they make per customer this year and beyond. 

“I do think it’s more of a pricing strategy than actually trying to offset the cost of network infrastructure acquisitions,” she said. 

One other reason bills are moving higher? Phone plan taxes are also on the rise. Last year, taxes, fees, and government surcharges made up a record 27.6% of the average wireless bill, according to the Tax Foundation, a research group that generally favors lower taxes.

“Few people actually open their cell phone bill to see the expense of the taxes and fees that they’re charged, but when they do, they tend to be rather blown away,” said Adam Hoffer, the Tax Foundation’s director of excise tax policy. 

Whether prices will continue to rise is unclear. In a recent note, Bank of America strategists called the August price jump in CPI “a one-off” attributable to AT&T’s changes. 

The price of phone service has been falling over the long run, thanks in part to the proliferation of cheaper mobile virtual network operators like Spectrum Mobile and Boost Mobile, but rising taxes and fees have eroded some of those savings.

And adding to the pain, phones themselves have grown more expensive as chip demand surges. While phone installment plans are separate from the cost of cell service itself, customers who buy phones directly from their carriers often see those charges bundled together in a single monthly bill. 

For fed-up consumers eager to lower their phone bills, cheaper options are probably out there, said Mike Tarr, general manager of data and insights at Navi, a telecommunications data and comparison shopping company. 

“It takes effort,” Tarr said. “Yes, prices may be going up, but if you haven’t shopped in a while, you might discover you can save money.”

Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.