Has UK inflation peaked? We’ll find out next week.
Tuesday’s CPI figures should show inflation close to last month’s 3 per cent. This is because a petrol price rise last month will offset the fact that higher food and clothing prices last November will drop out of the inflation data.
However, economists expect inflation will fall soon, and next week’s numbers will show why.
Although producer price data on Tuesday could show small rises in both input and output price inflation rates, both will be well below the peaks we saw earlier this year. This confirms that the impact of higher import prices was a one-off. This should be reflected in CPI inflation soon.
Also, Wednesday’s figures should show that wage inflation is low, at around 2.3 per cent – lower than it was a year ago. This means real wages have fallen.
Thursday’s numbers will show one effect of this. They should confirm that retail sales growth has slowed: volumes are likely to be up by only around 0.4 per cent in the three months to November.
Falling real wages are a puzzle. Wednesday’s numbers will show that unemployment is at a 42-year low, at around 4.2 per cent of the workforce. That this is not igniting inflation suggests either that there is more slack in the economy than the unemployment numbers would suggest, or that the relationship between slack and inflation has changed.
We’ll also get news on productivity next week. Last month’s numbers showed a jump in this, as total hours fell in the third quarter. This is likely to have been temporary.
Elsewhere, we should see more signs of strong overseas growth. Official figures should show that industrial production in the eurozone recovered in October from September’s fall. This would leave output up by around 1 per cent in the last three months compared with the previous three.
In the US, we should see small rises in November in both industrial production and retail sales. This would put the economy on course for GDP growth of around 3 per cent in the fourth quarter. The New York Fed’s survey of manufacturing should add to this cheery picture by showing strong growth (albeit not quite as much so as two months ago) and high expectations.
The Fed is likely to react to this by raising the fed funds rate by a quarter point on Wednesday. The ECB and MPC, however, are likely to both leave rates unchanged.
Watch out too for capital flows figures from the US Treasury on Tuesday. These have recently shown increased foreign buying of US equities, which has in the past been a lead indicator of worse future returns on global equities.
