Next week will bring mixed signals on how economies are coping with high inflation.
And inflation certainly is high. Official eurozone data will confirm that inflation was 7.5 per cent in March, mostly thanks to higher oil and gas prices; the rate excluding food and energy will be around 3.2 per cent.
Purchasing managers’ surveys, however, will show that the region’s economy is coping well with this. They should show that output of both manufacturing and services is still growing well, albeit a little less so than in recent months. This is because a fall in Covid-related staff absences and an easing in supply bottlenecks are offsetting the adverse impact of increased uncertainty. Germany’s Ifo survey, however, might show a less comforting picture, with current activity and expectations both declining.
We’ll also get mixed signals from the UK. Purchasing managers should report decent growth despite rising costs and prices, for similar reasons to the eurozone.
The consumer sector, however, is doing less well. On Friday, GfK could report that consumer confidence is close to its lowest level since 2009, as worries about energy bills outweigh a stronger labour market.
And the ONS could say the same day that retail sales volumes were only slightly up in March from February. This would leave sales down in quarter-on-quarter terms and 5 per cent below their April 2021 peak. It would also mean that sales are up by only 3 per cent in volume terms in the past three years – less than half the growth rate we saw in the previous 20 years. Such numbers cast doubt on economists’ hopes that savings will fall a lot this year and so support consumer spending.
The US economy might be coping better. Thursday’s survey by the Philadelphia Fed should show companies reporting around average rates of growth in activity and average expectations for the future, despite rising input and output prices.
The housing market, however, is coming off the boil. The National Association of Realtors is likely to report that sales of pre-owned homes were flat on a year ago, and have fallen since late last year. Given that the last significant slowdown in the housing market (in 2006-07) led to the great financial crisis, this poses the question of whether the economy’s resilience to the housing market has improved in recent years.
