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Soft inflation - but driven by transport not a widespread fall

UK DATA
  • The slowdown in core CPI looks to be fully driven by a slowdown in service inflation - with goods inflation only marginally weaker.
  • It is services inflation that the MPC is most concerned about so this will be comforting to the Committee.
  • Our data team will elaborate on this further shortly but transport accounted for the entire fall in the headline CPI Y/Y number, falling 3.6%M/M.
  • Furthermore, the unrounded headline CPI number was a very low 10.1% (10.05% in January) from 10.53% in December.
  • Overall, in isolation if this had been a broad based fall in service CPI, it would probably have offset the surprise to the regular wage numbers yesterday. However, the surprise is driven by a narrow category and we have also had a higher-than-expected US CPI print yesterday so we would not expect to see a full reversal of yesterday's move in gilts or SONIA.
  • Also, the MPC will receive another reading of CPI and labour market data shortly ahead of their March decision.
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