Inflation figures may settle interest rate argument

New information out this week could tilt the balance of argument between the Chancellor and the Governor of the Bank of England over the need for higher interest rates.

Inflation figures will help solve "the puzzles about the strength in activity, money growth and domestic inflation" which the Bank of England highlighted in its Inflation Report earlier this month. The two questions the new data will help answer concern the scale of inflationary pressure and the risk of a pause in growth as manufacturers and retailers offload excess stocks.

Good news on inflation is likely to result from bad news on another front: the possibility that an inventory shake-out will bring the economy to a halt. The Bank of England warned of this in its Inflation Report, saying "the main danger is a downturn due to destocking".

A survey of fund managers conducted by Smith New Court and Gallup revealed that they were more optimistic about the outlook for UK base rates. The average forecast was for a rise to 7.0 per cent in a year's time, compared with a prediction of 7.2 per cent a month ago. Sixty-four per cent of mangers expected an improvement in the economic outlook compared with 48 per cent last month.

The first instalment in the week's batch of inflation figures comes with today's producer price figures. These will show whether the recent fall in commodity prices will bring input price inflation down into single figures, as the market expects.

Even more attention will be paid to factory gate inflation. The headline figure is expected to rise because it was so weak in July last year. However, the City is expecting the core rate, which excludes food, drink, tobacco and petroleum, to fall from 4.8 per cent in June.

If the rate stays put - or rises - this will suggest that the alarm over the possibility of an inventory correction may be overdone. The ability of manufacturers to push through bigger price rises would indicate that the build-up in stocks in the second quarter suggested by the CBI survey has been voluntary.

Geoffrey Dicks of NatWest Markets says that the increase in stocks of finished goods in the first quarter was the highest since 1979. Since output did not rise, the implication was that "manufacturers were cutting back on output in a bid to stop stocks from accumulating".

Retailers have been building up inventories. However, last week's CBI distributive trades survey suggested they ran them down in July. Sluggish growth has led to the suspicion that shops have used huge discounts to shift unwanted stock.

This could lead to a more favourable outcome to the key release of the week, the retail price index for July. The market is expecting the annual rate of headline inflation to pick up from 3.5 to 3.7 per cent and the underlying rate, which excludes mortgage interest payments, to hit 3.0 per cent.

But economists at BZW think that both rates may stay unchanged. "With retailers overstocked there must be a reasonable chance that they cut prices in an aggressive fashion."

Start your day with The Independent, sign up for daily news emails
FIFA President Sepp Blatter reacts during a news conference in Zurich June 1, 2011
Life and Style
food + drink
peopleKatie Hopkins criticises River Island's 'seize the day' bags for trying to normalise epilepsy
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Nicole Kidman plays Grace Kelly in the film, which was criticised by Monaco’s royal family
film'I survived it, but I’ll never be the same,' says Arash Amel
Life and Style
Retailers should make good any consumer goods problems that occur within two years
tech(and what to do if you receive it)
Life and Style
healthIf one was missed, vomiting blood was seen as a viable alternative
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Guru Careers: Graduate Editor / Editorial Assistant

£16 - 20k: Guru Careers: A Graduate Editor / Editorial Assistant is needed to ...

Day In a Page

Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada
Birthplace of Arab Spring in turmoil as angry Tunisians stage massive sit-in over lack of development

They shall not be moved: jobless protesters bring Tunisia to a halt

A former North African boom town is wasting away while its unemployed citizens stick steadfastly to their sit-in
David Hasselhoff's new show 'Hoff the Record': What's it like working with a superstar?

Hanging with the Hoff

Working with David Hasselhoff on his new TV series was an education for Ella Smith