Will the US inflation rate justify a quicker taper from the Fed?
Federal Reserve chair Jay Powell said in testimony before the Senate on Tuesday last week that he no longer viewed inflation as “transitory”, and signalled openness to accelerating the pace of the central bank’s unwinding of crisis-era monetary policy.
November’s consumer price index data, due to be published on Friday, will give the Fed evidence of how quickly inflation is progressing and whether a faster withdrawal of its monthly purchases of government bonds would be warranted. That debate is expected to happen at the central bank’s next policymaking committee meeting on December 14-15.
“The November CPI update holds greater potential as an immediate influence on the path of Fed action although, at the end of the day, expectations hold that the inflation figures will only serve as further justification to wind down QE [quantitative easing] more quickly,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Last month’s CPI data showed that consumer prices had risen at the fastest pace in three decades. Prices in October rose by 6.2 per cent from October the previous year, and 0.9 per cent from the previous month, far outpacing the predicted level of 0.6 per cent. Economists polled by Refinitiv have forecast a 0.7 per cent rise for November.
Rising energy costs were among the biggest drivers of inflation in October, with the CPI energy index rising 4.8 per cent from the previous month. Petrol prices at the pump fell over the month of November but were nevertheless consistently higher than prices in October, according to the US Energy Information Administration. Kate Duguid
Did UK growth return to pre-pandemic levels in October?
The UK economy may have rebounded in October to levels not seen since before Covid-19 took hold, helped by positive momentum ahead of the Christmas holiday.
Economists polled by Reuters expect GDP to have grown 0.5 per cent between September and October — before global markets were shaken by news of the Omicron coronavirus variant in late November.
Sandra Horsfield, economist at Investec, is more optimistic than the consensus view and has pencilled in expansion of 0.7 per cent. Horsfield said this was “largely thanks to the buoyancy of services”, which she expects to have grown by 0.9 per cent, following encouraging labour market data after the end of the furlough scheme.
UK GDP for September was still 0.6 per cent below where it was in February 2020, meaning that on the monthly reading, new data released on Friday could show that output recovered to pre-pandemic levels in October.
Horsfield said that there was “little doubt that the economy pushed ahead again in October”, with the only question being the extent of the increase. The IHS Markit purchasing managers’ index, or PMI, jumped to a three-month high in October. Retail sales also grew more than expected and measures of consumer activity, such as bank transactions and retail footfall, have improved.
The impact of supply-chain disruptions, with many factories not receiving the materials they need to meet demand, is expected to have weighed on manufacturing output. But Horsfield’s forecast of a 0.5 per cent contraction in October is gloomier than the 0.1 per cent expansion of the consensus.
The data will be released ahead of the Bank of England Monetary Policy meeting for December, at which some economists expect a rise in interest rates. It is possible that the Omicron coronavirus variant will prevent the bank from tightening, but “we doubt that these GDP figures will”, said Horsfield. Valentina Romei
When will the US labour market return to normal?
Workers are in exceedingly high demand, and the US has an extremely limited number of them.
Americans will get an insight into how workers are navigating this scenario on Wednesday, when the labour department releases its Job Openings and Labor Turnover Survey for the month of October.
Workers have been quitting their jobs in mass this year, probably because they have been inundated with better offers. The September edition of Jolts showed a series-high 4.4m US workers quitting their jobs. The previous record was set in August.
Economists have said that a large number of those who quit probably already had another role lined up. Many expect that the high number of resignations will probably continue as long as competition for labour remains intense and employers poach top talent from their competitors to fill openings.
After the labour department reported on Friday that labour force participation is improving but that employers added only 210,000 jobs in November — less than half of the 550,000 they were expected to — economists will be watching closely to see if employers were able to find new workers to recruit in October. The payroll figures released for October were strong, so the number of appointments is expected to be, too.
The timing of the report means that it could show a boost brought on by the retreat of the Delta coronavirus variant, just as the world contends with the spread of the Omicron variant. But it could also show that the recovery is more volatile than had been hoped, like last week’s jobs report.
“The underlying momentum of the labour market is still strong, but [November] shows more uncertainty than expected,” said Nick Bunker, an economist at jobs site Indeed. Taylor Nicole Rogers