UK inflation is rising. Next Wednesday’s numbers could show CPI inflation has risen to almost 5.5 per cent, its highest rate since 1992, thanks in large part to higher utilities and petrol prices. It is likely to rise further by April before dropping back thereafter.
This won’t be the only sign of inflation. Producer price numbers could show manufacturing output price inflation running at almost 10 per cent, and input price inflation at almost 15 per cent – although with oil and some other commodity prices levelling off recently the latter might be near its peak. And flash purchasing managers surveys will show manufacturers reporting big price rises.
One element of inflation is missing, however – wage growth. Tuesday’s figures could show that average weekly earnings rose by less than four per cent in the year to November, which means they have fallen in real terms: PAYE data on monthly pay is likely to tell a similar story. This should quell fears of a wage-price spiral, as it suggests workers in aggregate don’t have the bargaining power to raise real wages.
This might seem odd, given that unemployment is falling: the official rate is likely to drop to around 1.4 million or just over 4 per cent of the workforce. However, there are a further 1.7 million people outside the labour force who want a job. And Wednesday’s figures will show that total hours worked are still some 2.5 per cent below their pre-pandemic peaks. The labour market, then, isn’t as tight as anecdotes about a few labour shortages would suggest.
These numbers refer to a period before the impact of the Omicron variant, but flash purchasing managers surveys are likely to report that it is hitting activity especially in the services sector, although the economy is still expanding.
Omicron, allied to falling real wages and the sharp rise in gas prices is having another effect: on Friday. GfK might report than consumer confidence is falling. This will add to concerns for the retail sector this year, but has the silver lining that it should help restrain inflation.
Elsewhere, the main news should be that economies are growing satisfactorily. In the eurozone, purchasing managers should report steady growth despite the impact of the Omicron variant, in part because supply constraints are easing a little. And in the US surveys by the New York and Philadelphia Fed should report decent growth in manufacturing and expectations of more to come, although they’ll also say that prices are still rising sharply.
