Inflation is high on the agenda today as the U.K. releases CPI figures, the U.S. reports set of PPI numbers, while China has already announced CPI and PPI, with the former above expectations.

U.K. inflation expected to remain high
The Bank of England offered no rate hike or signal thereof at its latest meeting last Thursday preferring to keep rates steady at 0.50 percent despite inflation trending higher. The King-led BoE continues to maintain that inflation will trend lower soon as transitory effects related to austerity measures and energy prices fade. We agree to some extent and expect inflation to head lower going into the second half of the year, but for now inflation is likely to remain quite elevated and could increase even more. Consensus agrees and forecasts unchanged year-on-year inflation of 4.5 percent at the consumer level in May following the ugly 0.5 percentage point jump in April.

U.S. PPI to calm down?
Just like across the pond in the U.K. the U.S. is dealing with rising inflation while having a central bank, which maintains that most of the rise is transitory, and yet again we are bound to agree. Especially the so-called core indices, which do not include energy among other things, are expected to rise only slowly throughout the rest of the year. Today we get the Producer Price Index, which is expected to rise a meagre 0.1 percent month-on-month in May with the core index forecasted to gain 0.2 percent. A key reason is the much lower oil prices in May (WTI crude is down some 8 percent), which should roughly offset the increasing goods in the index.

U.S. Retail Sales to decline?
Consensus looks for sales at the retail level to outright decline by 0.5 percent month-on-month in May in line with the other weak data we have seen so far for the month of May, but probably also due to disruptions from the Japanese disaster in March. If sales decline it will be the first such drop since June 2010 when a (similar?) batch of poor data had many – including us – worrying about a double dip in the world’s biggest economy. This time around we remain more skeptical of such an outcome and instead look for slower, but not negative growth, for the rest of the year which should ultimately see the economy, as measured by GDP, grow by 2.4 percent this year. Consensus is a bit more optimistic regarding ex-Autos sales, which are expected to grow by 0.2 percent.

Inflation higher in China
China released a whole host of data overnight with CPI among the more prominent. Prices at the consumer level rose no less than 5.5 percent year-on-year in May from 5.3 percent a month earlier prompting speculation that China may soon raise rates or otherwise interfere to calm the economy down. Inflation at the producer level kept steady at 6.8 percent while Retail Sales (16.9 percent vs. 17.1 prior) and Industrial Production (13.3 percent vs. 13.4 prior) both declined a bit.