Marcus Buckmann, Galina Potjagailo and Philip Schnattinger

Understanding the origins of currently high inflation is a challenge, since the effects from a range of large shocks are layered on top of each other. The rise of UK service price inflation to up to 6.9% in April might potentially reflect external shocks propagating to a wider range of prices and into domestic price pressures. In this blog post we disentangle what might have contributed to the rise in service inflation in the UK using a neural network enhanced with some economic intuition. Our analysis suggests that much of the increase stems from spillovers from goods prices and input costs, a build-up of service inflation inertia and wage effects, and a pick-up in inflation expectations.