UK CPI Nugget: Is something wrong with services?
Welcome to this short and sweet preview of the UK CPI report on Wednesday.
The focus point will be the Services CPI since the BoE keeps referring directly to this number in the communication around the possible policy pivot.
UK Services inflation is extremely seasonal, and December vs. January patterns are always interesting. The market is betting on a sharp deflation in Services (non-seasonally-adjusted) in December of -0.6%.
Services CPI: Market: -0.6% MoM, Steno Research: -0.8% MoM
Using our autoregressive model, we see a value closer to -0.8% MoM and note the extreme solidity in the magnitude of the “negative” autoregression given the print in December of close to 1% MoM.
Chart 1: What happens in December times -1 in January
Markets betting on one of the softest MoM services CPI prints in UK inflation history in January. Feasible? Yes, but…