The Determinants of Non-tradables Inflation

This article examines the factors that explain inflation in prices of non-tradable items in the CPI. Non-tradable goods and services by definition have relatively little exposure to international competition. Consequently, their prices are more likely to be influenced by developments in the domestic economy, particularly the extent of spare capacity in both production and the labour market. A more granular breakdown of prices highlights the importance of conditions in individual markets, such as housing, as well as non-market influences on prices.