Inflation scares could intensify next week. US figures on Tuesday could show that the overall consumer price inflation rate has risen to over 5 per cent, its fastest rate sine 2008. And the rate excluding food and energy could exceed 4 per cent, the highest since 1991.
The question is: how longlasting will this inflation be? It won’t disappear soon: surveys by the New York and Philadelphia Federal Reserves will show that firms are still reporting big price increases, amid strong growth in output – the latter being confirmed by official figures on industrial production on Thursday.
On the other hand, though, high annual inflation is partly due to unusually low prices (especially of oil) last summer: that base effect will fade in coming months. And Friday’s data could show that retail sales aren’t much higher than they were in March, suggesting that a good chunk of the stimulus cheques have been used to add to savings or reduce debt. With demand moderating so too eventually might inflation.
We’ll also see rising inflation in the UK, albeit less dramatically. CPI inflation could rise a little further above its 2 per cent target as a food price fall last year drops out of the data and restaurants edge up prices on reopening. Producer price data will also show input and output price inflation both rising.
We’ll also see high wage inflation on Thursday, with the rate over 7 per cent. Interpreting this, however, needs care. Partly, it is high because workers are putting in more hours per week now than they were a year ago: that raises weekly wages but not hourly ones. And partly, there’s a composition effect: low-wage workers have disproportionately lost their jobs, thus raising the average wage of those in work. Both of these effects will fade in coming months. It is only then that we’ll be able to gauge whether wage growth truly has increased.
But there’s a reason why it shouldn’t. Thursday’s figures will show that the official unemployment rate, whilst lower than in the winter, is still a percentage point above its pre-pandemic low. And there are another 1.8 million out of the workforce who want a job. This should remind us that labour shortages are localised.
Watch out too for official data on eurozone industrial production. These should show a small rise, but output will still be some five per cent below its December 2017 peak, and lower than it was before the 2008 crisis. That reminds us that the economy was stagnating before the pandemic.