Next week’s economy: January 10 – 14

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Next week’s numbers will put more pressure on the Fed to raise interest rates.

Wednesday’s figures could show headline consumer price inflation topped 7% for the first time since 1982, while the base rate (which excludes food and energy) could exceed 5%, its highest since 1990. Producer price inflation will also increase, with the headline rate reaching 10 percent.

While these numbers are likely near the peak, they will fuel the Fed’s demands to raise interest rates.

Data on the real economy could also do this. Friday is expected to see small increases in retail sales and industrial production in December, following decent increases in previous months. This will support economists’ expectations that real GDP grew at an annualized rate of around 6% in the fourth quarter, suggesting the economy is strong enough to accept higher rates.

The same cannot be said for other economies, however.

In the eurozone, official data could show industrial production remained more or less unchanged in November, albeit after a strong October. This would mean that production has only increased by about half a percent in the past 12 months. And while other data should show that unemployment in the region has returned to almost pre-pandemic rates (just over 7%), it would suggest that the trade-off between unemployment and inflation has gone downhill. is aggravated.

And in China, the PBOC is likely to say that the M1 measure of money supply grew only about 3% in 2021. History suggests that this is a leading indicator of weak growth. of the country – although this has the silver lining that it will lower commodity prices.

In the UK, data on Friday is expected to show a slight increase in real GDP in November, leaving it only about 0.5% below pre-pandemic levels. Those numbers predate the impact of the Omicron variant, however, which appears to have depressed demand in the hospitality industry in December.

The Covid had another effect. This has left many small businesses with high debt, which will hamper their future growth: this could be evident in the Bank of England credit conditions report, which may show only weak demand for borrowing. from these companies.

Friday’s trade figures are also significant. They will show that trade volumes are much lower than pre-pandemic levels. Whether due to Covid or Brexit, this is important as international trade tends to increase productivity and therefore potential long-term growth rates, so less trade could mean lower trend growth.


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