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Easter effects over-egged–but services prices remains stickyApril 2024 Sanjay Raja, CFA FRSAChief UK Economist Easter effects overegged–but price pressures remain sticky Our UK Inflation Chartbook recaps the latest monthly inflation data, presenting our key takeaways, including measures of underlyinginflation.We also include an update of our inflation projections for CPI, core CPI, and RPI. March inflation broadly in line with our expectations. Headline CPI slowed to 3.2% y-o-y--a tenth above consensus, DB projections, and Bank of Englandexpectations. Core CPI fell to 4.2% y-o-y, in line with our forecasts. Services CPI shifted lower to 6% y-o-y–two-tenths higher than consensus expectations(including the BoE), but in line with our forecast. RPI slowed to 4.3% y-o-y, also in line with our expectations. Pushing inflation higher was a combination ofrising energy prices (i.e. pump prices), tobacco prices, hotel prices, and mobile phone services (among others). On the flipside, we continued to see moredownward momentum in food and core goods items. What next?Today's data should confirm that CPI is on its way to ~2% y-o-y in April--but we now think the path to the Bank of England’starget will be a slimone, given rising energy prices and a slew of index-linked costs coming into effect. We’ve lifted our headline CPI projections for April from 2% to 2.2% y-o-y, onthe back of both rising oil prices and a slight adjustment upward in the services administered/index-linked basket. Importantly,however, we still expect headlineCPI in the UK to drop below the US and EA next month on account of weakening energy, food and core goods prices. Negative base effects for services CPIshould also help bring headline inflation down as some of the stronger index-linked/admin costs from last year fall away from the annual rate calculation. Where to now?Since ourinflation previewout last week, we have made further tweaks to our inflation forecasts. First, we have re-adjusted our projections forairfares, following on from the March inflation data. We now project only a 2.5-3% m-o-m increase in April. Second, we have reflected the recent news in oilprices, as per the latest Brent futures curve. This should see a further chunky increase in April (likely around 1.7% m-o-m). Third, we have further tweaked ourelectricity and gas projections, toning down our July projection from-10% to-8%. Moreover, the skew of inflation risks are shifting firmly. Upside risks are building around our projections–as per our own DBPrice Survey Tracker. On coregoods, logistical tensions from the Red Sea could result in some upward movement in core goods momentum in the second half ofthis year–something we'vewarned about before. Food prices could also turn later this year, lifted by heavy rainfalls dampening domestic production. And given rising geopolitical risks, oiland gas could also become more of an issue than we previously assumedwith potential increases to dual fuel bills coming through in H2-24. Overall, we continue to expect headline CPI to land around the BoE’s 2% target in Q2-24.But,we see CPI bouncing back up in H2-24, running around 2-2.5% y-o-y. Core CPI, we think, will likely end the year just around 3.1% y-o-y. And services CPI will likely edge lower to around 4.4% y-o-y by year end. Our projectionsfor RPI have also been tweaked higher to 3.9% y-o-y in 2024 and 3.8% y-o-y in 2025, moving closer to market fixings. Bank of England still on course for rate cuts in spring–but margin of error is narrowing.For the Bank of England, the March data should confirm a steadyslowdown in inflation. To be sure, there’s still a lot of volatility in the inflation path ahead, especially with next month's all-important April price data. And moreimportantly, today’s data was a stark reminder that while a 2% CPI print may be within reach, it won’t be a smooth descent totarget. AQ2-24 rate cutwill now bepredicated on the strength of forthcoming price data, benchmarked to the MPC’s revised projections due in May. The March 2024 Report–a deep dive into the details Headline and services CPI coming in above the Bank of England’sprojections in Mar-24 Services, food (including alcohol and tobacco) in line…but core goodsand energy a touch higher …as highlighted in the m/m readings RPI broadly in line with expectations, with some downside in servicesoffset by upside in core goods Upside coming mainly from hotels, communication, tobacco Seasonally adjusted pressures coming from comms, books, privaterents, accommodation services, health, and IT products Services inflation–inching lower in March 2024 Non-energy core goods inflation still falling like a stone Food (including alcohol and tobacco) inflation also slowing rapidly Energy CPI firmly in deflation territory, but oil prices adding moreupward pressure Underlying trackers of inflation Core services CPI falling to 6.1% y/y in Mar-24 from 6.2% y/y Measures of underlying inflation pointing to firm downwar