To date, services inflation has remained relatively subdued ‒ averaging around 3.9% in 2022. However, upside risks seem clear, especially in medical insurance as premiums move closer towards their longer-term average rates. In addition to this, the tightening rental housing market and high inflation expectations are expected to exert upside pressure on core inflation over the near term.
Risks to services inflation also emanate from spillover effects from higher food and fuel inflation as well as possible higher wage increases given the adaptive nature of wage settlements in our economy. (We have already seen sharply higher wage settlements in the public sector.) We predict that core inflation will only decline to the target midpoint in the second quarter of 2025.