Lower Tier Inflation Measures Hit Lowest Levels Seen Since Early '22

The latest UK Kantar grocery price inflation index reading showed the lowest Y/Y reading since Mar ’22 (+5.5% Y/Y).

• The BRC shop price index also fell to the lowest level seen since Mar ’22 (+2.5% Y/Y, released overnight).
• The slowing in the BRC measure was largely driven by food prices, although that reading still runs at +5.0% Y/Y.
• The disinflation process in non-food goods stalled at +1.3% Y/Y, which will concern some given the need for a continued move lower to pull wider inflation closer to the BoE's target.
• Some lower tier inflation measures are now nearer to the BoE’s target, but headline CPI is still some distance from 2% and services inflation/wages worry remains evident.
• BoE Governor Bailey has previously noted that rates can be cut before the inflation target is met but stressed that more progress needs to be seen on inflation. He also highlighted that he is comfortable with a market profile that shows rate cuts.
• BoE-dated OIS moves from pricing ~63.5bp of ’24 cuts to ~67bp early today.