UK inflation is proving harder to break in the basic services that Britons use — from haircuts to dining out — backing up the Bank of England’s concerns about stickier price pressures in the largest part of the economy.
The Office for National Statistics said persistent inflation hotspots concentrated in the services sector have been “slower to reach a turning point” and have caused the smaller fall in the inflation rate.
Prices in restaurants and cafes, rents, hairdressing and the dentists were highlighted as being among the top 10 most persistent parts of the inflation basket. Air fares and energy, including gas and electricity, were among the least persistent components in the consumer prices index including owner occupiers’ housing costs (CPIH).
The analysis supports the BOE’s focus on services prices as a key measure of domestic price pressures as it continues to hike interest rates. While inflation slipped to its lowest in 17 months in July, services prices rose at their joint-fastest pace since 1992.
“The persistent component of the inflation rate has been slower to reach a turning point and so the subsequent fall in the inflation rate has been smaller,” the ONS said Monday. “The inflation rate in the restaurants and cafes class is found to be a good measure of the underlying trend in consumer prices inflation in the UK economy.”
The BOE pushed up its key lending rate to 5.25% earlier this month amid the threat from sticky prices and rapidly rising pay. Markets are betting on rates hitting 6% after strong wage data last week that suggests businesses may pass higher costs back to consumers.
BOE Governor Andrew Bailey said earlier this month that services prices are now contributing more to the headline inflation rate than energy or goods.
“Continued strength in services price inflation may suggest that high inflation could persist for longer,” Bailey said following the latest rate hike.
--With assistance from Eamon Akil Farhat.
