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Article / 13 January 2015 at 6:00 GMT

3 Numbers: UK inflation to fall below 1%, US SME optimism, US jobs

editor/analyst /
United States
  • UK consumer inflation expected to slip below 1%
  • US small-business optimism finally recovering
  • Job openings on track to rise to a 14-year high in the US

By James Picerno

Today’s update on consumer price inflation in Britain is expected to show that disinflationary momentum is building. Later, a pair of US releases will likely strengthen the outlook for economic growth. 

First, the National Federation of Independent Business publishes its monthly sentiment data for small businesses. Later, Washington publishes new figures on US job openings.

UK: Consumer Price Index (09:30 GMT)
Inflation in Britain has been slipping further below the Bank of England’s 2% target lately and today’s update is expected to show a another round of deceleration. Consumer prices are projected to slide to a 0.7% year-over-year rate in December, down sharply from 1% in November, according to Reuters. 

If the crowd is right, and inflation falls below 1%, Bank of England Governor Mark Carney will be required to write a letter to Chancellor of the Exchequer George Osborne and explain why pricing pressure is so low.

Consumer prices are continuing to fall in Britain, fuelling expectations that
disinflationary momentum is building. Photo: Thinkstock

Decelerating inflation in the UK is hardly a surprise. The BoE’s Monetary Policy Committee late last year anticipated that 2015 would witness the annual pace of consumer prices dip below 1%. Tumbling oil prices and a weak Eurozone – a key trading partner for Britain – are crucial factors in the current disinflationary mix.

Economic conditions are still considerably stronger in the UK vs. the Eurozone, but the sight of lesser inflation will raise concerns about Britain’s growth prospects for the year ahead. The economy expanded by 0.6% in last year’s fourth quarter, according to last week’s update from the National Institute of Economic and Social Research (NIESR). “This is broadly in line with the average quarter-on-quarter growth over the last 18 months,” NIESER said in a statement.

Yet it’s also true that Q4's 0.6% GDP gain ticked below the 0.7% rate in the previous quarter, a point that won’t go unnoticed if today’s inflation report also shows a hefty decline.

One curious divergence from the lesser-inflation trend can be found in wages. While consumer inflation is sliding, average earnings are taking wing, albeit from a relatively low base. Earnings ex-bonuses, for instance, rose 1.6% during the August-through-October period vs. a year earlier, marking the first time in six years that pay increased by more than inflation.

That’s good news for workers, although another batch of soft numbers in today’s CPI release will suggest that the improvement in real earnings may be temporary. 

US: NFIB Small Business Optimism Index (12:30 GMT) The mood among small-business owners is finally improving in a convincing degree after several years of false starts.

“Expectations for business conditions six months out rose a huge 16 percentage points while expectations for real sales volumes rose five percentage points,” the National Federation of Independent Business (NFIB) noted in last month’s release. The climb to just below the historical average prior to the Great Recession has come in fits and starts, but the encouraging gain at the end of last year signals that growth in this key corner of the economy will improve in 2015.

Economists expect no change in today’s estimate for January, according to’s consensus forecast. But holding steady at a relatively elevated level will reinforce the view that business conditions are improving for the companies that are responsible for the lion’s share of employment growth in the US.

The improving sentiment is all the more encouraging because it comes at a time of stronger growth in jobs. For instance, the recent acceleration in the rate of increase for payrolls is conspicuous in small companies in recent months. ADP’s estimate for firms with 49 or fewer employees shows an average monthly increase of 101,000 in total workers for the four months through the end of last year – the best gain for that rolling window in over two years.

Today’s update on sentiment for small firms will likely reconfirm the case for thinking that this long-struggling corner of the US economy is poised for its best year of growth since the Great Recession ended.

US: Job Openings & Labor Turnover Survey (15:00 GMT) The US economy has been minting jobs at a faster pace lately, an improvement that’s been the de facto forecast in the job openings data published by the Labor Department. 

At the start of last year’s second quarter, the number of openings shot higher and have been trending up ever since. Not surprisingly, employment figures have followed suit. The connection between openings and payrolls meanders from month to month, but a convincingly upward bias in the JOLTS numbers is a strong signal for projecting an improvement in the labour market generally.

The crowd expects that today’s release will bring more good news. The consensus forecast calls for a slight improvement in openings, according to 4.875 million openings in November vs. 4.834 in the previous month. 

If the prediction holds, openings will reach the highest level since 2001. In turn, the outlook for the US employment trend will remain bullish.

– Edited by Gayle Bryant

James Picerno is a macro analyst at Capital Spectator. Follow James or post your comment below to engage with Saxo Bank's social trading platform. 


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