A busy week ahead, with the release of both inflation and labour market data.
On Tuesday, the ONS will release two of the most keenly watched indicators over the coming year, producer and consumer price inflation.
Inflationary pressures were building towards the back end of last year and are set to continue in 2017. Rising oil prices, coupled with the large and sustained depreciation of sterling have already fed through to manufacturers, raising their input costs by a hefty 15.8% in the year to December. Output prices were however still lagging behind, increasing by only 2.7%. This illustrates that the pass through was far from complete and as a result the growing pressure on manufacturers’ margins.
The question is by how much the higher factory gate prices will feed through to consumer prices. In December the CPI was up from 1.2% to 1.6%. With manufacturers only willing to take the hit to their margins to a certain extent, we expect a further increase this month and for the CPI to go above 2% in 2017.
Labour market data for February will be released on Wednesday. This has made for pleasant reading in the last few months, with the unemployment rate remaining at 4.8% since October, its lowest level for 11 years. Whilst the pace of job creation did slow in January, various economic indicators point to the economy being in good health. As a result we expect the unemployment rate to remain unchanged for February.
Perhaps the most interesting aspect of the labour report however will be the data on average earnings, given the differing opinions been put forward. We have our first indication of January settlements out this week, in our February Pay Bulletin.