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Next week's economics: 11 - 15 April

Next week will bring signs of economic growth and of rising inflation
April 7, 2022

Next week will bring signs of economic growth, and also of rising inflation.

On Monday, the Office for National Statistics is likely to say that real GDP grew in February, with output rising further above its pre-pandemic peak.

Labour market data the following day should corroborate this picture, showing another rise in employment. Unemployment data, however, will be flattered by the fact that the labour force is shrinking: some 300,000 older people have left the labour market since late 2019. And demand for labour, as measured by hours worked, is likely to still be around 2 per cent below its pre-pandemic peak.

Inflation, however, is still rising. Wednesday’s figures could show CPI inflation rising to around 6.5 per cent due to higher food price inflation and higher petrol prices. There will, however, be a much bigger jump next month because of April’s surge in utility bills. We’ll also see rises in manufacturing input and output prices as a result of rising prices of oil and other raw materials.

Wages, however, are not keeping pace with prices. Tuesday’s figures will show average earnings growth of around 5 per cent, confirming that real incomes are being squeezed. The Office for Budget Responsibility believes consumers will respond to this by running down their savings to sustain their real spending. If it is wrong, economic growth will soon falter.

We’ll see a similar picture in the US. Official figures on Friday should show a small rise in industrial production in March, leaving output a healthy 1.8 per cent up on the quarter. However, the New York Fed’s survey the same day is likely to repeat that prices are still rising strongly. This inflation might be curbing consumer spending. Although Thursday’s figures could show a rise in nominal retail sales, much of this will be because Americans are paying more for what they call gasoline; the volumes of spending might well be slowing down.

In the eurozone, Wednesday’s figures could show a small rise in industrial production in February. Whether such strength can continue in the face of higher energy costs since then is, however, doubtful. Germany’s ZEW survey is likely to show that finance professionals have become much gloomier about the economy. 

We might, though, get a glimmer of optimism from China, where annual growth in the M1 measure of the money stock could rise to over 5 per cent. This matters, because in recent years such growth has been a lead indicator of output growth, and so this would point to less weak growth in the economy.