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Opinion

Next week's economics: 15-19 April

Next week's economics: 15-19 April
April 12, 2013
Next week's economics: 15-19 April

On Tuesday we could see a rise in consumer price inflation, from 2.8 to around 3 per cent, largely because a fall in food prices last March will drop out of the annual inflation rate. Manufacturers' output and input price inflation might also increase a little, in response to the fall in sterling. All this helps explain the MPC's recent reluctance to embark on more quantitative easing, a decision that Wednesday's minutes of this month's meeting might help clarify.

However, wages aren't keeping pace with prices. Wednesday's figures could show that earnings growth is well under 2 per cent.

This cut in real wages might help explain Thursday's news, which could show that retail sales fell in March; although this will also be a backlash against February's big rise and a response to the cold weather.

Lower real wages might also help explain the biggest puzzle about the economy - highlighted by Wednesday's numbers - which is that employment has grown so much recently while output hasn't. It could be that workers are being priced into jobs - although this is unlikely to be the complete explanation of the puzzle.

However, just because employment is rising it does not follow that unemployment is falling. Wednesday's numbers might show this is levelling off, as more people join the labour force.

Overseas news could be rather good, though, pointing to an economic upturn. This could be most spectacularly true for US housing starts on Tuesday, which might post a 30 per cent rise year on year. However, US industrial production figures the same day should also show good growth - of around 1.3 per cent quarter on quarter. And surveys of manufacturers by the Philadelphia and New York banks are likely to show that, with orders increasing, this growth should continue.

There should also be good news from Germany. The ZEW survey of financial professionals should show that, although optimism about the economy has levelled off recently, it is much higher than it was a few months ago. This should point to the economy pulling out of recession soon.

Perhaps the most important figures for equity investors, however, will be Monday's capital flows data from the US Treasury. These have recently shown a pick-up in foreign buying of US stocks, which suggests excessive optimism about shares and hence falling prices over the next few months. Any further increase in such buying would thus add to this danger.