US inflation has risen again, next Friday’s numbers will show. The headline rate could rise to around 7 per cent, its highest rate since 1982.
This is partly due to higher oil prices. The core rate, which excludes food and energy, is likely to be around 5 per cent, its highest since 1991. The monthly rise in the index, however, might be lower than we saw in the spring, giving support for the Fed’s view that this spurt of inflation will be temporary.
Elsewhere, the main news is likely to be that output is being held back in part by shortages of materials.
The ONS is likely to say on Friday that real GDP edged up slightly in October, with growth restrained in industry because of difficulties of getting materials. This would leave the economy only around half a per cent smaller than it was before the pandemic.
We should see a similar story in the eurozone. Official figures from Germany could show output levelling off after shortages (especially of computer chips for cars) had reduced it over the summer. This means production is still some 10 per cent below its pre-pandemic level, and 16 per cent off its 2018 peak. French and Italian numbers will also show that production is in the doldrums.
We shouldn’t attribute this only to the pandemic and short-term shortages, however. French industrial output is some 15 per cent below its 2008 peak. That’s a reminder that the country (and eurozone in general) faces long-term structural problems.
What’s more, growth might not snap back much when shortages are resolved. Figures from the People’s Bank of China next week are likely to confirm that annual growth in the M1 measure of the money stock is slowing. This matters, as this has been a good lead indicator of economic growth in the country. And slower growth in the world’s second-largest economy is likely to suppress demand and confidence around the world. It will also push down commodity prices. This time next year, therefore, we might well be worrying more about demand and less about inflation.
Next week might also bring signs of a slight cooling off in the housing market, with the Halifax reporting a fall in annual house price inflation to around 7.5 per cent. A lack of supply and government support for house buyers is supporting prices but lack of affordability is holding them down.
Watch out also for Friday’s trade figures. These are likely to show both export and import volumes well below 2019’s levels – more so than can be explained by low aggregate demand. This reflects the effect of the pandemic in reducing global trade and shortages of some imported materials, but also a Brexit effect.