Next week’s numbers will confirm that UK inflation is worryingly high, with CPI inflation likely to be around 5.5 per cent, probably on its way to over 7 per cent by the spring.
It’s not just the level of inflation to watch for, but the breadth too. So far, inflation has been largely concentrated in petrol, used cars and energy; any spread beyond these sectors would be concerning.
We might, though, get a crumb of comfort here. Producer input price inflation could dip below 13 per cent, having been as high as 15.2 per cent in November, as raw materials price ease a little.
One area where inflation is not high, however, is the labour market. Tuesday’s numbers could show that average weekly earnings rose less than 4 per cent in the year to the fourth quarter, implying that they are falling in real terms. This reflects the fact that the labour market overall is not tight enough for workers to bid up real wages. Yes, Tuesday’s numbers will show that the number of employees on payrolls and number of vacancies are both at record highs. But the numbers of self-employed are much lower than before the pandemic; the official unemployment rate is above its pre-pandemic low; there are 1.7 million people outside the labour force who want a job; and total hours worked (measure of labour demand) are around 2.5 per cent below their peak.
Falling real wages are hitting the retail sector. Although Friday’s numbers could show that sales rose in January, having been hit by Omicron in December, they are likely to be well below the levels they were in the autumn.
Overseas, we should see more evidence that the US economy is doing better than the eurozone’s. Official figures for the latter could show that industrial production dipped in December, and was more than 1 per cent down in Q4 compared with Q3. This is only partly due to staff absences caused by Omicron: trend growth was weak even before the pandemic.
In the US, by contrast, we should see recoveries in industrial production and retail sales in January, following December’s dips. And surveys by the New York and Philadelphia Feds should show steady growth, with companies expecting more in coming months. Those surveys could also show an easing of inflationary pressures, albeit from high levels – but not by enough to change expectations that interest rates will rise in March and continue rising thereafter.
