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Financial markets in the United Kingdom and the United States will be focusing on inflation this week, even though ...
Financial markets in the United Kingdom and the United States will be focusing on inflation this week, even though the release of the latest retail price data in the UK is not until next week.

On Monday producer output and input price information for July is published in the UK. In recent months output price inflation has fallen to around 2% - its lowest level since the 1960s - and the markets are not expecting any acceleration in prices in coming months.

There are some indications from surveys, e.g. the CBI's industrial trends survey, that manufacturers would like to increase their output prices more rapidly. But resistance from consumers is preventing them doing so.

Producer input price inflation (i.e. the cost of raw materials) is increasing, although from a very low base, and is expected to exceed output price inflation in July.

This reflects stronger global commodity prices and a slight weakening of sterling. It does not necessarily point to a significant increase in output prices in the near future because the cost of raw materials is a small proportion of manufacturers' total costs.

Wage costs are a much greater proportion of total costs and these remain subdued, reflecting low pay settlements and strong productivity growth.

In the US producer and consumer price data are released this week. The markets are still taking a relatively optimistic view on US inflation, but are on the alert for any indications that it is picking up, so increasing the likelihood of higher US interest rates.

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