US inflation has risen again, next week’s numbers could show. On Wednesday, we could see that consumer price inflation has edged up to over 5.5 per cent, and that the rate excluding food and energy has risen above 5 per cent. Both would be the highest rates since 1990. This isn’t due merely to big rises in a few prices. The trimmed mean inflation rate, which excludes sectors of both unusually high and low inflation, might also be close to its highest since 1990.
The Fed isn’t much worried by this, blaming it upon “transitory factors”. Financial markets have begun to share their lack of concern: bond yields and inflation expectations have edged down since May. And we’ll get a little justification for this in numbers on Chinese monetary growth. These could show that the M1 measure of the money stock has risen by only around 5 per cent in the past 12 months. This has in the past been a good lead indicator of output growth in the country and hence of demand for commodities. Weak monetary growth thus points to weak demand, which might well hold down prices of many raw materials in coming months.
In the eurozone meanwhile official data could show only a weak upturn. Although industrial production in the region should post an increase, it will only be slightly up in Q2 compared with the first quarter. And output will remain well below its 2017 peak. Such lacklustre figures might, though, be tempered by the ZEW’s survey of financial professionals which should show that optimism is still very high, albeit not quite as much so as a few months ago.
The UK should be doing better. The ONS will say on Thursday that real GDP rose again in June, leaving output almost 5 per cent higher in the quarter compared with the first quarter. The expenditure breakdown will show that this is largely due to increased consumer spending after the easing of lockdowns. We’ll also see a big rise in exports (especially perhaps to the EU) in the second quarter, albeit mostly matched by higher imports. And whilst there’s likely to be a rise in business investment, it will remain well below its 2017 peak.
Indeed, GDP as a whole will still be some 3 per cent below its pre-pandemic peak, and even further below what it would have been had we experienced normal growth since 2019. In this sense, the economy has a long way to go before it is fully healed.
