Is US inflation picking up? We’ll get some clues next week.
Tuesday’s consumer price data might show a slight rise in headline inflation to 2.2 per cent. That compares to a rate of only 1.6 per cent in June, but it is still less than a year ago. If we strip out food and energy, inflation might be flat at 1.8 per cent; this measure has barely moved in the last nine months.
Producer price data might show a different picture. Both overall and core annual rates will be well up from a year ago. But both might be slightly lower than they were in November.
Unless we get a big surprise, the general picture will be one of inflation being steady to upwards, but not an urgent danger.
Other numbers, meanwhile, might show that US growth is cooling off. Although Wednesday’s retail sales figures should show a slight increase last month, sales in January and February together might be only slightly up on the fourth-quarter’s level. Similarly, while industrial production should show a small rise in February, this would be consistent with only moderate quarter-on-quarter growth. This would cast doubts over whether the economy can achieve 3 per cent GDP growth this quarter.
Surveys might be more ambiguous, though. The New York Fed’s survey of manufacturers could show a slowdown in growth, albeit from high rates, although optimism should remain high. But the Philadelphia Fed’s survey should show continued strong growth with expectations of more to come.
In the eurozone we should get signs of ongoing expansion. Industrial production should have risen slightly in January, implying three-month on three month growth of around 1 per cent, and leaving output some 5 per cent up on a year ago. Germany’s ZEW survey of financial professionals might, however, be more downbeat. It’s likely to show optimism flat at slightly below its long-term average. As this survey failed to predict the current strong economic expansion, the significance of this might be questioned.
Equity investors should also watch for capital flows data from the US Treasury on Wednesday. These have recently shown an increase in foreign buying of US Treasuries. This is a sign of increased confidence along investors and in the past this has led to share prices falling as that confidence has proven unsustainable.
