Figures next week will increase pressure on the Fed to raise interest rates.
Wednesday’s numbers could show that headline consumer price inflation has risen above 7 per cent for the first time since 1982, while the core rate (which excludes food and energy) could rise above 5 per cent, its highest since 1990. Producer price inflation will also rise, with the headline rate reaching 10 per cent.
Although these numbers are likely to be close to the peak, they will fuel demands for the Fed to raise interest rates.
Data on the real economy could also do so. Friday should see small increases in both retail sales and industrial production in December, following decent rises in previous months. This will corroborate economists’ expectations that real GDP grew at an annualised rate of around 6 per cent in the fourth quarter, which suggests the economy is strong enough to take higher rates.
The same cannot, though, be said of other economies.
In the eurozone official data could show that industrial production was more or less unchanged in November, albeit after a strong October. That would mean output has grown by only around half a per cent in the past 12 months. And while other data should show that unemployment in the region has returned to almost pre-pandemic rates (of just over 7 per cent) this would suggest that the trade off between unemployment and inflation has worsened.
And in China, the PBOC is likely to say that the M1 measure of the money stock grew by only around 3 per cent in 2021. History suggests this is a lead indicator of weak growth in the country – although this has the silver lining that it will reduce commodity prices.
In the UK, Friday’s data should show a small rise in real GDP in November, leaving it only around 0.5 per cent below pre-pandemic levels. These numbers, however, pre-date the impact of the Omicron variant, which seems to have depressed demand in the hospitality sector in December.
Covid has had another effect. It has left many small firms with high debt, which will inhibit their future growth: this might be evident in the Bank of England’s credit conditions report, which could show only weak demand for borrowing from such companies.
Friday’s trade numbers are also significant. They will show that trade volumes are well below pre-pandemic levels. Whether due to Covid or Brexit, this matters as international trade tends to raise productivity and hence long-term potential growth rates, so less trade might mean weaker trend growth.