U.S Producer Price Inflation shot up against expectations yesterday, overperforming by 1.2% which has been put down largely to the impacts from the Middle Eastern conflict. Figures were expected to hit 4.8% but came in at 6% which again is alarming for The U.S and now undoubtedly increases the likelihood of interest rate hikes over the coming months.
Particular increases came from a 12% jump in energy prices, and food prices rising by 1.5% due to supply chain issues.
Sterling is holding relatively firm this morning after UK GDP data showed the economy grew by 0.6% in the first quarter, matching expectations and marking a clear improvement from the previous quarter’s 0.2% growth. Importantly, the growth was fairly distributed across the board, with services, manufacturing and construction all contributing positively. March GDP also came in stronger than expected at 0.3%, suggesting the economy continued expanding despite rising energy prices and ongoing disruption linked to tensions in the Middle East.
For the Labour government, the figures offer some welcome relief following recent political pressure and weak local election results. While it does not remove broader concerns around the UK outlook, stronger economic growth helps reduce fears that the economy is slipping towards stagnation.
Higher growth combined with elevated energy prices increases the risk that inflation remains stubbornly high over the coming months. That could make it harder for the Bank of England to cut interest rates anytime soon and may even revive discussions around whether rates need to remain higher for longer.
Later this afternoon we turn our attention back to The U.S, with their weekly release of Continuing Jobless & Initial Jobless Claims which both look set to increase again. However, the most important release will be April’s Retail Sales. Figures are forecast to show a 1.2% drop from 1.7 & to 0.5%.
This shouldn’t necessarily come as a surprise after recent inflation reports in The U.S, but it does throw into question whether an interest rate hike or in fact a cut would be more beneficial. This is simply due to the fact that if Inflation were to continue rising, increasing interest rate hikes could possibly lead consumers down a difficult path.
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