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Prime Minister Rishi Sunak's victory lap on inflation is premature

Prime Minister Rishi Sunak's victory lap is premature. The latest CPI figures sparked a flurry of self-congratulation from him last week, as he proudly points to the drop to 2 per cent as evidence of his economic prowess. But before we break out the champagne, let's take a closer look at the data.

There's a sharp divergence between goods and services inflation, the widest since 1989. This is the elephant in the room that Sunak seems to have ignored.

While goods inflation has dipped into negative territory at -1.3 per cent, services inflation remains stubbornly high at 5.7 per cent. This divergence suggests that the fight against inflation is far from over.

History tells us that such wide gaps often presage significant policy moves from the Bank of England. But in the current climate, with its conflicting signals and lagging indicators, the central bank faces an unenviable task.

The reality is that beneath the headline figure, inflationary pressures continue to simmer, particularly in the services sector. And the UK is very much a service-based economy.s

Source: Eeagli

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