MNI BRIEF: UK Services Inflation May Persist - Lombardelli

Clare Lombardelli, who is set to become the Bank of England Deputy Governor for Monetary Policy on July 1, said Tuesday that while inflation was heading lower, its path was likely to be bumpy and that service sector inflation could prove to be sticky.

Lombardelli, currently OECD chief economist, told the Treasury Select Committee that a mix of base effects and erratic pricing behaviour was likely to result in that bumpy inflation path and that headline inflation was likely to fall more quickly than services inflation. She declined to date the BOE's first rate cut, stating that the question was how to balance risks of more persistent services inflation and high nominal wage growth against declining headline inflation. (see MNI INTERVIEW: Services Inflation Poor Policy Guide - Vlieghe)

There were signs that the labour market was easing, she said, with vacancies having fallen from their peak, and wage growth slowing. But with private sector wage growth at over 6% year-on-year wage growth has not been compatible with the BOE's inflation target. Her first policy vote will be at the August meeting.