NIESR Monthly CPI Tracker - Services Inflation Poses Risk to Summer Interest Rate Cuts

NIESR’s measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes to eliminate volatility and separate the signal from the ‘noise’, fell to 3.1 per cent in March from 3.9 per cent in February; core CPI fell to 4.2 per cent from 4.5 per cent; and services inflation fell to 6.0 per cent from 6.1 per cent. [...] Given that wages in the services sector account for most of the sector’s input costs, it is the main driver of services CPI inflation, which today’s data suggest was 6.0 per cent in March, falling from 6.1 per cent in February. [...] While services inflation remains entrenched in this range, non-energy goods inflation – which previously also averaged around 6 to 7 per cent – has been softening consistently since the second half of 2023, falling from 2.7 per cent in January to 1.9 per cent in February, and further to 1.4 per cent in March (Figure 5). [...] As a result of the slight decrease in services inflation and the more considerable decline in non-energy goods inflation, core inflation fell from 4.5 per cent in February to 4.2 per cent in March (Figure 1). [...] NIESR’s measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes to eliminate volatility and separate the signal from the ‘noise’, fell to 3.1 per cent in March from 3.9 per cent in February.