Service inflation looks only at the service-related categories like education, hospitality and culture. By breaking down CPI to only look at services, economists can look closely at the different forces that influence this type of inflation. For example, labour market and unemployment has been shown to play more of a role in service inflation compared to goods inflation.
The UK is a majority service-based economy, meaning most jobs revolve around providing services rather than creating products. This means that service inflation has a large influence on overall inflation. The Investment Strategy Group for Goldman Sachs Wealth Management predict that service inflation will remain persistent in the UK and prevent a sharp fall in underlying inflation for 2023. Job market resilience and wage growth are contributing factors.
Our research has suggested that UK adults are less concerned about service inflation as the cost of holidays (21%), eating out (20%) and entertainment (12%) were what respondents were less worried about. Perhaps this is down to these costs being seen as more of a luxury and so more avoidable.
Even if annual service inflation rate rose to 7.4% in June and could be keeping CPI figures high, other costs that you’re maybe more worried about could be starting to plateau. For example, energy inflation is down to 2.9% in the year to June from 8.10% in the year to May.