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OPINION

Next week's economics: 14-18 Jan

Next week's economics: 14-18 Jan
January 11, 2013
Next week's economics: 14-18 Jan

In one sense, this isn't a great problem; 0.4 percentage points of this inflation is, in effect, a tax rise - the tripling of university tuition fees. And producer price data the same day is expected to show that there isn't a generalised inflation problem. These are expected to show manufacturing output price inflation (excluding duties) of little more than 2 per cent, while input price inflation is only just positive - and input prices are lower than they were in the spring.

In another sense, though, there is a problem, because prices are rising faster than wages, thus squeezing real incomes. We'll see one effect of this in Friday's official retail sales figures. Although these are expected to show a (seasonally adjusted) rise in December, this won't be enough to prevent sales volumes falling in the fourth quarter relative to the third quarter. This will be consistent with the UK having fallen back into (seasonally adjusted) recession in the fourth quarter.

The UK isn't alone in this. Although Monday's official figures from the eurozone should show a decent rise in industrial production in November, this would only partly reverse October's big drop, and would leave the region on course to record a fall in output in the fourth quarter generally.

However, things should be a little better in the US. Tuesday's Empire State survey might show that manufacturing activity in the New York area has picked up a little. And the following day the Fed's beige book - a survey of regional economic conditions - should show a modest expansion. This should be confirmed by official industrial production data the same day, which should show a small rise in output in December. That said, it's likely that output will be down in the fourth quarter relative to the third quarter, but only slightly and that will be due mainly to the effect of Hurricane Sandy.

We should also get some good news from US inflation, with Wednesday's figures showing core consumer price index inflation (that is, excluding food and energy) stuck at 1.9 per cent. This would leave inflation lower than in the spring. The fact that it has dropped at the same time as unemployment has fallen suggests that the unemployment-inflation trade-off is improving, which often happens as recoveries mature.

We should also watch out for US capital flows numbers on Wednesday. If these repeat last month's figures, which showed the foreign private sector being net sellers of US equities, it would augur well for global equity returns this year, as it suggests that sentiment has been unusually depressed and thus could bounce back, to the benefit of shares.