This week all eyes will be on CPI and wage inflation.
Inflation continues its ascendance
CPI inflation came in at 2.3% in the year to March after it overshoot the Bank of England's 2% target in February. Rising food and clothing prices were the main culprits behind the inflationary pressures, but those were largely offset by downward contributions from air fares and motor fuels. We expect the upward trend in inflation to continue in April. This reflects the impact from the sterling depreciation as manufacturers continue to pass-through the past surge in input costs into higher consumer prices. Moreover, upward pressures on inflation are likely to be heightened this month by the volatile contribution from airfares due to the timing of Easter school holidays. This should be slightly offset by a negative contribution from the energy component of inflation as oil prices fell back below 50$ a barrel in April amid oversupply jitters while they increased the same month a year ago.
All eyes on wage inflation
Labour market statistics are due to be released on Wednesday. While the unemployment rate continued to trend downward in recent month, real wage growth has so far disappointed leaving the UK labour market puzzle unresolved. Moreover, the subdued momentum in earnings acted as a drag on consumer spending last quarter causing a slowdown in GDP growth at the start of 2017. The trend is unlikely to reverse this month.
Manufacturing pay trends
EEF Pay Bulletin covering the April major bargaining round will be out on Thursday. Average settlement has been running below the 2% mark so far this year, increasing only slightly to 1.9% from last year's 1.8% average. Yet official statistics pointed to a somewhat stronger momentum in earnings growth across manufacturing compared to the economy as a whole economy. It will be interesting to see whether the trend continues this month.