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Upside CPI Surprise, Services Pushes Core to 1992 High
UK CPI surprised to the upside in April, with core CPI jumping 0.6pp to +6.8% y/y against expectations of holding steady at at +6.2% y/y for a third consecutive month.
- Headline CPI came in at +8.7% y/y, easing 1.4pp to the lowest since March 2022. Yet this was 0.5pp higher than expectations and casts doubt upon whether prices will ease sharply in Q2 as anticipated by the Bank of England's latest upgraded May forecasts. Monthly prices rose +1.2% m/m, also outpacing consensus by 0.5pp and accelerating 0.4pp from April.
- Housing and households services accounted for the bulk of downwards CPI pressure in April, led by falling gas prices compared to April 2022. This saw goods CPI ease from +12.8% y/y to +10.0% y/y.
- Food inflation eased a marginal 0.1pp to +19.1% y/y from the March record high.
- Meanwhile services CPI accelerated from +6.6% y/y to +6.9% y/y (the highest since March 1992). Services jumped on the back stronger recreational and cultural services which accelerated +6.4% y/y from +4.6% y/y in March.
- Looking forward, yesterday's May flash PMI highlighted “the [services] growth spurt is driving renewed inflationary pressures, as service providers struggle to meet demand and hence ... find themselves able to charge more".
- However, the April PPI data also published today showed output and input PPI fall to the lowest since February 2021.Yet with core CPI at a over 30-year high and services showing little signs of easing, the May CPI data (published on June 21) will be closely eyed before the June 22 policy decision.
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