UK CPI Preview (Mar 25): The Calm Before the Storm?
Although most aspects of the January CPI came in a notch above BoE thinking, there was still a clear fall even in the core rate. Indeed, the headline CPI rate fell from December’s 3.4% to 3.0% (a 10-mth low) and we see it staying there is February’s numbers - as do BoE projections. Services and the core rate fell both 0.1 ppt to 4.4% and a new cycle low of 3.1% for the latter and both may edge down further in the next set of data. They will be offset by higher fuel prices, thereby a foretaste of what is to come in coming months as the Middle East conflict spills over. This is all the more notable as declines, if not broad(er) disinflation had been signalled for some time by adjusted m/m data (Figure 2).
Figure 1: Headline Moves Sideways?
Source: ONS, Continuum Economics
Admittedly, not all aspects of the CPI data were reassuring, with a further rise in catering services inflation, often seen as an indicator of price persistence given that the sector’s cost base is very much wage related. Even so, the evidence on this is mixed with HMRC pay data very clearly showing a slowing in wage inflation for accommodation and food services. Regardless there are very clearly reassuring aspects most notable in even lower rental inflation which at just over 3% has more than halved in the last year, surely an added sign that the housing market is in the doldrums. There was also a further slowing in non-energy goods inflation which probably reflects both weak global demand and dumping of goods by China once destined for the U.S.
But the February data will be considered to be old, if not irrelevant, news. But will after the calmer numbers of late provide something of a glimpse of the energy storm ahead, with a jump in in fuel inflation
Figure 2: Short-Term Core Inflation Consistent with Target for Some Time?
Source: ONS, Continuum Economics