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Downside CPI surprise, supports a BoE pause

15th February 2023

Commenting on the Consumer Price Index (CPI) published today, Royal London Asset Management’s (RLAM) Senior Economist, Melanie Baker, said:

“Alongside the fall in headline inflation, domestically-driven inflation still looks strong – but perhaps a touch less strong than it did. Services inflation fell, led by transport services. There were more modest falls in inflation in a couple of other services components too, namely housing services and recreation/personal services.

“However, six out of 12 CPI sub-categories contributed positively to the move in headline inflation in January and yesterday’s regular pay data (weekly average earnings) surprised on the upside. It is also hard to attribute too much of the downward movement in inflation to weaker underlying domestic inflation pressure when so much of the fall in year-on-year CPI inflation was about the transport component. The contribution from that component was also accentuated by annual weighting changes. Weakening domestically driven inflation pressures are likely to be more of a story later in the year.

“In the Bank of England’s (BoE) February Monetary Policy Report, the staff forecast for this January headline inflation figure was 10.1%Y, so today’s data was not an undershoot of their forecasts at least. I still expect further rate hikes from the BoE this year while domestically-driven inflation looks strong, but this data in isolation looks more consistent with a pause for now.”


The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.