The drop back in core CPI inflation to a 17-month low of 2.0% in March was partly due to weather effects, but also reflects an increase in competitive pressures in some sectors, which will persist for at least the next few months. A price war has broken out among cell phone service providers and the flood of offlease vehicles coming back on to the markets has triggered a slump in used car prices. Headline CPI inflation was still 2.4% last month, but largely because of the rebound in energy prices relative to the lows reached 12 months ago. We still expect core inflation to rise gradually over the next couple of years, but those competitive pressures mean that the increases will be relatively modest.
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