Week ahead 12th December

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This week will be quite a busy one for data releases and events. The main highlights are inflation and labour market data and a final word in 2016 from the Monetary Policy Committee.

Producer prices

On Tuesday ONS publish factory gate prices for November. There has been a recent surge in interest in this release, largely a consequence of the surge in input price inflation that materialised shortly after Sterling’s tumble in June.

Last month’s release showed input prices accelerating by more than 12% in the year to October, with even larger increases seen in food, metals and petroleum inputs. However, output price rises are lagging far behind, inevitably doing some damage to profit margins in some industries, as we’ve been blogging about in recent months.

We expect to see more of the same in the latest statistics for November. While the Sterling average effective exchange rate edged higher in November, it was still some 10% lower than in June and our recent Manufacturing Outlook report also point to some pick up in output prices in the final quarter of the year, but this isn’t like to be sufficient to alleviate pressure on margins.

Consumer prices

The question is when will (if?) these factory gate price increases feed through to consumer price inflation. In October CPI dipped back to 0.9%, but with last year’s petrol and food price falls dropping out of the annual series, CPI is expected to pick up quite rapidly from here on in.  

There is a fair bit of uncertainty about how much of the input cost increases will show up in the CPI data given some retailers’ reluctance to raise prices. However, that’s more a question for 2017 rather than this month’s release.

Labour market

There’s been nothing but positive news in the labour market data this year. Unemployment has continued to fall and in the three months to September the rate dropped to 4.8% - the lowest for more than 11 years. However, the pace of job growth is slowing. While we haven’t seen a referendum related impact in the data, any further declines in unemployment in the remainder of this year are set to be modest.

This month also sees new data on manufacturing jobs from ONS covering the third quarter of the year. We’ve seen gain in the previous three quarters, with the number of people employed in the sector up 13,000 in the three months to June. Our q3 Manufacturing outlook report showed negative employment balances for the period, but with a recovery in the final months of this year.

And a final word from the MPC

..the committee voted to maintain Bank Rate at 0.25%. Probably.

 

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Chief Economist

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