Inflation is troublingly high around the world, next week’s numbers will show.
Official figures for the eurozone could show that CPI inflation has risen above 6 per cent for the first time since the monetary union was formed in 1999. Around half of this is due to higher oil prices. The rate excluding energy will be around 3 per cent, but even this is more than a percentage point above the ECB’s target rate.
The US is also seeing high inflation. Friday’s ISM survey will show that manufacturers are still reporting big rises for output and input prices, in part because of ongoing difficulties in getting supplies of parts and materials. Such inflation is hitting consumer confidence. The Conference Board is likely to report that this has fallen recently, despite the tightening labour market.
We’ll see evidence of that tighter labour market on Friday, when the BLS is likely to report another half a million net rise in jobs, taking the unemployment rate down to around 3.7 per cent.
This rate would, however, still be above its pre-pandemic low of 3.5 per cent; employment will also still be below its 2019 level; and the employment-population level far below its 1999 peak. Consistent with all this, wage inflation is likely to be levelling off, at around 5 per cent – less than the rate of price inflation. In the absence of a wage-price spiral, inflation is likely to fall back eventually.
Meanwhile, we’ll see mixed evidence on the health of the world economy. The ISM survey will show strong and rising orders and output, and official Japanese data could show a rise in industrial production – although that pre-dates the Russian-Ukraine war and rise in Chinese cases of Covid-19. However, Chinese purchasing managers could report weak output in March, as a result of Covid-19 and higher commodity prices.
In the UK, the main news could be the ongoing strength of the housing market. The Nationwide could report annual inflation of over 12 per cent. Most economists, however, expect the rate of increase to fall back because of higher mortgage rates and a lack of affordability. Bank of England data will bring evidence of this; they could show that mortgage approvals are flat.
Watch out also for national accounts data on Thursday. These could show that households and companies were big net savers at the end of last year, suggesting that the post-lockdown increase in consumer and investment demand has not been as strong as some expected. The counterpart to this saving is big government borrowing; the latter will fall only if or when private sector saving does.
