Three of the most keenly watched data points over the coming year are out this week – consumer and producer price inflation, and within the labour market data, wage inflation.
In the year to February consumer price inflation broke the Bank of England’s 2% target and posted at 2.3%. This rate of increase, driven mainly by rise in fuel prices, surprised to the upside and as such we expect a slower rate of increase this month, if any, as fuel price inflation pulls back. April however should see a sharp rise, as the so called “Easter Funny” takes effect. This is where airlines increase airfares in line with the school holidays, before dropping them sharply the following month. With Easter being almost a month later compared to last year, we expect to see a huge swing in year on year inflation of the airfares component in April.
Producer price inflation continued its upward trajectory last month, with inputs prices up 19.1% from same month a year ago. Manufacturers continued to put output prices up in response – up 3.7% in the year to February. The difference in these figures however illustrate the growing pressure being put on manufacturers’ margins. This is a trend we expect to continue this month.
Labour Market Data
In the three months to January, the unemployment rate fell to a 4.7%, its lowest level since September 2005. Given the positive indicators the economy is churning out, we expect this to remain unchanged. The more interesting aspect of the release will be data on wage inflation - which has slowed from 2.8% in the three month to November to 2.2% in January. Subdued wage growth combined with higher inflation is clearly not a good mix for consumers, and is a trend we will be keeping a close eye on.