UK wage inflation is rising, next week’s numbers could show. Earnings growth might edge up to 3.7 per cent, the biggest increase since 2008.
One reason for this is that Tuesday’s figures could also show that the unemployment rate is at a 45-year low of 3.7 per cent.
But whether this rise can continue is doubtful. Other figures on Tuesday could show that productivity growth is barely rising at all, and that there are still 1.8m people out of the labour market who'd like a job. Both these facts should put a cap upon real wage growth.
Other inflation numbers, however, will be benign. Producer price data should show that raw materials prices haven’t changed from a year ago and that output prices are rising only around 1.7 per cent year on year, close to a three-year low. And consumer price index (CPI) inflation is likely to show little change from last month’s 2 per cent. All these numbers, however, predate the likely rise in import prices caused by the recent drop in sterling.
Rising wage growth and stable price inflation means of course that real wage growth is picking up. This is helping support consumer spending. Although Thursday’s figures could show that retail sales volumes dipped slightly last month after a strong June, even this would leave them 0.3 per cent up in the latest three months, suggesting that consumer spending is stronger than much of the rest of the economy.
In the US, we should see slight increases in both retail sales and industrial production – although the latter will be below January’s level. And surveys by both the New York and Philadelphia Feds should confirm last month’s readings, which showed rises in both activity and expectations, to around their post-crisis averages. All this would be consistent with the economy continuing to grow steadily.
Such growth is not yet igniting inflation. Tuesday’s numbers are likely to show that CPI inflation is only around 1.6 per cent, well down from a year ago, while the core rate (which excludes food and energy) has flatlined for the last 12 months at around 2.1 per cent.
In the eurozone, official figures should show that industrial production slipped back in June after a strong May. This would mean it fell slightly in the second quarter, although the level of output is well above the trough we saw late last year.
For investors, though, the most important news will be in Thursday’s US capital flows data. These should show that foreigners have been big net sellers of US equities in the last 12 months. In recent years this has been a strong lead indicator of high subsequent returns on equities.
