The debate about whether US inflation is transitory or not will rumble on next week, with Wednesday’s CPI figures giving a mixed picture.
On the one hand, the headline inflation rate could rise to over 5.5 per cent, its highest rate since January 1991, thanks in part to higher petrol prices.
On the other hand, though, the rate excluding food and energy might stabilise at around 4 per cent. That compares with 4.5 per cent in May. And month-on-month price rises – for both headline and core CPI – will be much lower in the last few months than they were in the spring, suggesting that what we saw then was indeed a brief burst of rising prices rather than the start of sustained inflation.
Elsewhere, the concern will be about the pace of the recovery. Although official eurozone data should show that industrial production recovered in September after August’s drop, the picture will be that the upturn is weak and volatile: output is likely to be only around 0.5 per cent higher in the third quarter than in the second.
Nor are the prospects good. The ZEW survey of finance professionals will show that optimism for the German economy has fallen sharply since the spring, in part because of shortages of materials.
What’s more, output will be some 5 per cent below its pre-pandemic peak (which came as long ago as December 2017), and even further below its 2008 peak. That’s a reminder that the region has been in long-term stagnation – a fact from which the pandemic has distracted us.
We might also get worrying news from China, with news that the M1 measure of the money stock has risen less than 4 per cent in the last 12 months. This matters because such weak growth has in the past been a good lead indicator of poor output growth in the country and hence of lower commodity prices. This should worry holders of mining stocks, but please those worried by inflation.
In the UK, the ONS will report that real GDP rose a little in September, implying quarter-on-quarter growth of around 1.4 per cent – although this will be well down on Q2’s 5.5 per cent jump, and will mean that GDP is still 2 per cent below its pre-pandemic peak.
The breakdown of the data should show that growth has been driven by higher consumer spending on hospitality and by increased capital spending, mitigated by increased imports and a run-down in inventories. Business investment, however, is still likely to be some 10 per cent below its peak, which came as long ago as 2016.
