Sometimes the devil is in the details – Commerzbank – Crypto News – Crypto News
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Year-ahead expected inflation drops to 3.5% in July, lowest since April 2021 Year-ahead expected inflation drops to 3.5% in July, lowest since April 2021

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Sometimes the devil is in the details – Commerzbank – Crypto News

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1 year ago

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A look at the data shows that in the UK most of the disinflation in the core rate over the past year has come from goods prices. If inflationary pressures on goods prices had not eased so much, the core rate would not have fallen so much. Services inflation, on the other hand, is much more persistent and is currently almost entirely driving the core rate. It is therefore not surprising that the Bank of England (BoE) has repeatedly emphasised that it wants to see more progress here, Commerzbank FX analyst Michael Pfister notes.

Sometimes the devil is in the detail

“Durable goods peaked first in the current cycle during the pandemic. On the other hand, real incomes have also suffered from the subsequent rise in the other components. The consumption of durable goods is likely to be the first thing that consumers cut back on when incomes become tighter. In addition, supply chains have eased considerably since then, which is likely to put additional downward pressure on prices.”

“This is unlikely to continue forever. Real incomes are now rising again and at some point consumers will need durable goods again. In addition, freight transport has recently become more expensive. The first signs of a turnaround can already be seen in the data, and inflationary pressures are likely to pick up again. This would not be dramatic if inflationary pressures from other sources continued to decline.”

“Services prices would be predestined to do so. However, looking at the first level of the sub-components, price pressures are much more broadly based. If durable goods prices stop falling but services prices remain stubbornly high, there will be little room for lower core UK interest rates. And correspondingly less room for the Bank of England to cut interest rates more sharply.”

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