Next week will bring evidence of strong economic growth around the world – and also of rising inflation.
In the US, Friday’s figures should show that the US economy created almost a million net new jobs in June. The ISM survey should show rising demand and output, and the Conference Board could report that consumer confidence is near a 21-year high.
In Japan, official figures could show a third successive month of strongly rising industrial production while the Bank of Japan’s tankan survey should show a strong improvement in trading conditions.
In China, purchasing managers should report that manufacturing activity is growing, albeit not at the pace we saw at then end of 2020.
And in the UK and eurozone, final purchasing managers’ surveys should show rising output and orders.
This upturn is, however, generating some inflation. In the US the ISM is likely to report that firms are seeing rising prices and shortages of some materials and labour market data could show significant rises in average earnings. And in the eurozone, we could see CPI inflation above its target rate (which is just under 2 per cent) for a second successive month. This is, however, largely due to higher oil prices: the core rate of inflation – which excludes food and energy – should be little changed at just under 1 per cent.
It’s not just goods and services that are seeing inflation, though. So too is the housing market. In the US, S&P could report that prices are around 14 per cent higher than a year ago. And in the UK, the Nationwide could report a 12 per cent annual increase. This is partly due to a base effect: prices fell last June, but also due to the release of pent-up demand, a lack of supply, and government measures to support prices via mortgage guarantees and the stamp duty holiday.
Bank of England money data on Tuesday will also be important. They’ll show whether the unlocking of the economy has led households to run down the cash piles they built up during the lockdown, and whether consumer debt is rising again.
Also important will be Bank data on corporate finances. These could show rising cash holdings thanks to increased demand post-lock-down. But they’ll also show very different experiences from company to company. Whereas large companies have paid down debt in the last 12 months, smaller ones have seen a 25 per cent rise in it. A key issue for coming months is what impact this increased debt burden will have in stymieing expansion plans or forcing companies to close.
