Proactive Investors - UK inflation figures, due on Wednesday, are expected to ease but big rises in food prices may mean the overall number retreats more slowly than had been hoped.
Inflation is expected to have fallen back into single figures in April, with economists on average expecting the consumer price index to fall to 8.3%as the effects of energy price hikes a year ago drop out of the data.
But soaring food prices are, according to the Resolution Foundation, overtaking energy prices as the biggest driving force of inflation and may result in inflation not coming down as fast as expected.
The inflation data comes a day before regulator Ofcom announces the new energy price cap, which is forecast to see bills drop by around £450 per household from the current level.
For March, the headline CPI rate was up 10.1% on a year earlier, the seventh straight month of double-digit inflation, or up 0.8% compared to the previous month.
The Bank of England’s preferred measure, CPIH, which includes owner occupier housing costs, increased 8.9% year-on-year, while ‘core’ CPI, which excludes fuel and food, was up 6.2%.
Sarah Coles, analyst at Hargreaves Lansdown (LON:HRGV), said: “While we’ve waited a long time for inflation to fall, we may need to wait a while longer for any more significant change [and] April’s drop is unlikely to ease the pressure on our pockets”.
In the past week Bank of England boss Andrew Bailey admitted the UK is dealing with a wage-price spiral, saying he is concerned that sticky inflation will continue ploughing through our finances, which is what led the Bank to up its forecast for inflation at the end of the year to around 5%.
What’s more, he said the easing of a very tight labour market is also “happening at a slower pace than we expected in February", meaning second-round effects such as demands for higher wages, are also “unlikely to go away as quickly as they appeared.”
The stickiness of core inflation, said analyst Danni Hewson at AJ Bell, “is what is driving wage demands from workers, whether they are public or private sector, unionised or not, and policymakers’ key concern remains that wages rise and fuel demand stokes inflation, prompting more wage demand and ultimately creating the vicious spiral that bedevilled the 1970s and resulted in both inflation and interest rates going way above 10%, helped along the way by a couple of oil price shocks.”
Although jobs data last week raised hopes for a pause in Bailey’s interest rate hikes, the market is still expecting two more rate rises to a base rate of 5% this year before cuts are made in the first quarter next year.
Other UK macroeconomic data of note in the coming week includes public sector net borrowing and flash purchasing managers’ index (PMI) surveys on the services and manufacturing sectors on Tuesday; the CBI’s industrial trends report on Wednesday; car production and the CBI distributive trends report on Thursday; and retail sales on Friday.
Across in the US, macro highlights may include be PMI data on Tuesday, minutes from the last Federal Reserve meeting on Wednesday and speeches from several FOMC members throughout the week; GDP and home sales on Thursday; and core PCE inflation, durable goods and the Michigan consumer sentiment survey on Friday.
EU consumer confidence is on Monday and PMI data on Tuesday.