Increasing cost of fuel expected to cause rise in US inflation

 

Inflationary pressures in the global economy have remained benign given that crude oil prices have soared to record nominal levels, hitting $76 (€61) a barrel in New York on Friday.

This week's data releases will provide investors with an opportunity to judge whether inflation trends are likely to remain muted or if high crude costs will put more pressure on prices.

Higher petrol prices are expected to affect US inflation figures for June, due tomorrow. The consensus forecast suggests a rise of 0.4 per cent on the month, which would push headline year-on-year inflation from 2.5 to 3 per cent. Core inflationary pressures remain more benign, helped by discounting on new cars as Ford and Chrysler join General Motors in offering lower prices.

The increase in car sales will help the motor vehicle sector that has been acting as a drag on manufacturing output, which is expected to rise by 0.3 per cent on the month when July's figures are released tomorrow.

Total industrial production is expected to rise by 0.3 per cent on the month but demand for electricity because of hot weather suggests the output could be stronger.

UK inflation figures for July, also due tomorrow, are expected to show upward pressure from higher petrol prices and energy costs being offset by heavy discounting by retailers, particularly on clothing and footwear.

The gloom on the High Street highlighted by the latest report from the British Retail Consortium is expected to be confirmed by official retail sales statistics for July, due on Thursday.

In spite of pricing competition and a rise in the number of sales days, consensus forecasts suggest total retail sales will decline by 0.5 per cent on the month.

Some explanation will be provided by the labour market statistics, due on Wednesday.

Employment declined over the latest quarter and the claimant count has risen for seven out of the past 10 months.

Further increases in unemployment appear likely.

Deutsche Bank expects weak economic growth to push British unemployment up by 0.5 percentage points during the next 12 months.

In the euro zone, revised figures for inflation in July, due on Thursday, are expected to confirm the initial estimate, which showed a modest increase from 2.1 per cent in June to 2.2.