Analysts at TD Securities note that UK inflation data came in stronger than expected in March, with headline inflation falling to 3.2% y/y and core declining to 4.2% y/y.
This is not what the BoE wants to see Services, which matters the most to the Bank of England , edged down just 0.1ppts to 6.0% y/y . Surprisingly enough, airfares were not a key driver of the print—prices rose just 0.1% m/m, which especially when factoring in the early Easter this year, makes it quite a weak increase. Instead, stronger than expected food prices drove part of the surprise, but a sharp 3.
8% m/m surge in accommodation prices also put notable upside pressure on the print. Moreover, volatile components like books and video games also contributed to the upside surprise.Book prices rose a substantial 4.9% m/m—the largest m/m increase on record—and video games surged 2.3% m/m. These sorts of effects are prone to reverting after a month or two. Overall, this is not what the BoE wants to see, in particular after the stronger than expected wage numbers out yesterday.
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