Average CPI inflation in the OECD is now 10.3 per cent. Inflation is no doubt a global problem, but next week's data will show that advanced economies are not all in the same boat.
First, Japanese inflation data will be released on 15 August. To UK readers, Japan’s low figures will feel like a blast from the past – CPI is currently running slightly above target, at 2.5 per cent. ING senior economist Min Joo Kang argues that this mild elevation is driven by increased utility prices rather than excess demand. With sluggish retail sales last month suggesting a limited recovery in private consumption, Kang predicts that “cost-push-driven inflation will not change the firm stance of the Bank of Japan’s easing policy”.
Eurozone inflation figures follow on 18 August, and energy prices will continue to exert the most pressure. Berenberg chief economist Holger Schmieding argues that “although eurozone inflation rates may soon surpass those in the US as European consumers pay higher and higher prices for natural gas, the ECB does not (yet) have to suppress genuine domestic inflation pressures”.
But in the UK, price pressures are building. The latest Bank of England monetary policy report highlighted that “domestic inflationary pressures are projected to remain strong”, and added that underlying nominal wage growth is expected to increase as the labour market remains tight. Next week’s data will give us a clearer picture of the strength of domestic demand: UK retail sales and GFK consumer confidence figures both come out on Friday, and the ONS Labour Market overview will be released on Tuesday 16 August.
The ONS releases updated CPI figures on 17 August - expect sobering evidence of a long and steep climb towards peak inflation. The BoE now expects CPI to rise to over 13 per cent in the fourth quarter and to remain above 9 per cent for another year.
We will also get a sense of the strength of US domestic demand next week. At the most recent FOMC press conference, Fed chair Jerome Powell repeatedly referenced the challenge of the US’s extremely tight labour market, meaning US state unemployment figures on 19 August will be keenly watched. Yet Powell also noted that “recent indicators of spending and production have softened”, and next week’s Empire State Manufacturing Survey and US retail sales figures will give an indication of just how much.
Although the next Fed meeting isn't until September, dedicated central bank-watchers can get another fix next week: the July FOMC meeting minutes will be released on 17 August.
