Historically these two categories have moved together, but services inflation with administered or indexed prices, combined with private rent growth, are now three times as high in the UK as they are in the eurozone. By contrast, prices in \u201cmarket-based\u201d services such as leisure and hospitality are growing at similar rates in both economies. Price pressures in administered or indexed services do not clearly reflect the balance between supply and demand, and using monetary policy to counter their rise isn\u2019t appropriate.<\/p>\n
Another often named culprit for accelerating inflation is food prices, which have been rising across much of the world but at a faster pace in the UK than in the eurozone. But it\u2019s not clear that this gap reflects anything other than global trends and slightly different supply chains and shopping baskets in the two economies. <\/p>\n
Take chocolate: global cocoa prices surged to multi-decade highs at the end of 2024 as heavy rain, drought and plant diseases disrupted harvests in West Africa. Prices increased in the UK and the euro area, but were felt more sharply in the UK because chocolate forms a larger share of Brits\u2019 shopping baskets. Differing consumption habits and the timing of the pass-through to inflation have been at play in olive oil and beef prices too. <\/p>\n
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Dhingra says the UK\u2019s wage and services price growth appear linked but a closer look shows no real correlation<\/p>\n
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These are still relatively isolated cases. Close to three-quarters of the UK-eurozone food inflation gap can be explained by just ten products. For the most part, food items are contributing to inflation in the UK and Europe to a similar extent. In Ireland, where consumption, production and global exposure patterns most closely resemble the UK, food inflation is running at a similar rate (5.1 per cent in August).<\/p>\n
Wages are also playing a smaller role than first appears in the UK\u2019s inflation story, despite making up a big chunk of the costs in services. While wage and services price growth appear linked at a headline level, a more granular look shows no real correlation. <\/p>\n
Wages in the UK accelerated faster than the eurozone during the pandemic, but since 2024 earnings have been growing at similar rates so can\u2019t explain the recent inflation gap. Wages also aren\u2019t behind the rise in administered and indexed services. Rising wage bills accounted for 61 per cent of price growth in market-based services over the past year, but only 27 per cent for administered services.<\/p>\n