UK and US Inflation Data and China Retail Sales: Key Economic Indicators to Watch

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

UK Wages (Sep) /UK CPI (Oct) – 14 and 15/11 – last week's Q3 GDP numbers showed how much pressure the UK economy is under despite the continued slowdown in headline inflation we've seen over the past few months. Despite this slowdown headline inflation remains well above its peers in Europe and the US mainly due to the impact of the energy price cap which has kept prices in this area artificially high.

 

One major plus point has been wages growth which has taken some of the edge off, but which now looks as if it might have peaked. The last 3-months has seen earnings excluding bonuses remain steady at record highs of 7.8%, although including bonuses we're still above 8%. At the most recent Bank of England meeting interest rates were kept unchanged and a further sharp slowdown in headline inflation in October could reinforce the idea that the Bank of England is done when it comes to further rate hikes. September CPI came in higher than expected at 6.7%, with most of the increase being driven by higher petrol prices, which offset a modest fall in food prices.

 

Core prices eased slightly to 6.1% however services-based inflation rose from 6.8% year on year to 6.9%, and this is the area where the BOE has some concerns. That said this week's October inflation numbers should see another big slowdown given that the energy price component is expected to fall sharply from the same period last year, when the price cap jumped sharply. With energy prices now much lower, we can expect to see another sharp fall in this component which in turn should see a commensurate fall in the headline rate with expectations for a sharp slowdown to 4.8%, from 6.7%. Core CPI is expected to slow to 5.7%, from 6.1%.

 

US CPI (Oct) – 14/11 – having found a short-term base in June at 3%, US headline inflation has spent the last 3 months edging higher, although core CPI has still been slowing at a steady rate. Core prices slowed to 4.1% from 4.3% while there was a modest upside surprise in the headline number caused mainly by higher rent and fuel prices, and which did raise concerns that the Fed may well go with another rate hike between now and the end of the year.

 

These concerns have eased in recent days after a weaker than expected October jobs report, while retail sales in the US have also slowed. If we see further evidence of core prices slowing in October, then it could add fuel to the idea that the Fed might forego a pre-Christmas rate hike and leave policy as is. US CPI is expected to slow from 3.7% to 3.3%, with core prices expected to come in unchanged at 4.1%.

 

China Retail Sales (Oct) – 16/11 – last month China reported that its economy expanded by 1.3%, helped by a more resilient consumer, after retail sales rose by 5.5% in September, while industrial production rose by 4.5%. Industrial production has been steadily consistent over the third quarter; however, consumer spending has been much more constrained since the post Covid lockdown spike we saw at the start of the year.

 

One of the more consistent narratives of the last few months has been various luxury as well as other retailers who have reported a sharp slowdown in Chinese consumer spending, a trend that doesn't appear to be being reflected in the official Chinese data. The Q3 months have seen retail sales slow sharply, with gains of 2.5% and 4.6% in July and August, rounded off by 5.5% in September. While today's numbers do suggest a modest improvement in Q3 the extent of the rebound does raise questions given the weakness of recent trade data, as well as PMIs. For October retail sales are expected to show an increase of 7%, with industrial production remaining steady at 7%