More of the same: higher inflation, weaker growth

Yesterday's economic data showed a pattern that has become familiar.

Reuters reports the latest UK inflation figures.

The inflation rate rose in May to its highest since the Labour government came to power in 1997 but the Bank of England played down the risk of early interest rate rises by saying the path for rates was still "uncertain".

The Office for National Statistics said on Tuesday consumer prices rose 0.6 percent last month, taking the annual rate up to 3.3 percent from 3.0 percent in April -- higher than forecasts for an inflation rate of 3.2 percent.

The rise above 3.0 percent meant Bank Governor Mervyn King had to write an open letter to the government explaining what the central bank would do to bring inflation back to its 2 percent target. (TO SEE LETTER CLICK here)

The Bank revised up its short-term inflation forecast but said there were both upside and downside risks to the outlook and that the central bank faced a difficult balancing act between slower growth and rising prices.

Slower growth and rising prices are certainly what the US economy also faces. From Bloomberg:

The U.S. economy may be suffering from its first bout of stagflation since the start of this decade, reports on housing, prices and manufacturing indicated.

Builders broke ground on 975,000 homes at an annual pace in May, the least in 17 years, and construction permits fell, the Commerce Department reported in Washington. Meanwhile, the Labor Department said producer prices jumped 1.4 percent, more than economists forecast. A further report from the Federal Reserve showed industrial production unexpectedly dropped 0.2 percent.

And in Germany, investor confidence could be leading the economy down. Bloomberg reports:

German investor confidence dropped to the lowest in more than 15 years in June as surging inflation dimmed the outlook for growth in Europe's largest economy.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations fell to minus 52.4, the lowest since December 1992, from minus 41.4 in May. Economists expected a decline to minus 42.5, according to the median of 37 forecasts in a Bloomberg News survey. A negative reading means that pessimists outnumber optimists.

A bit of positive news, though, came from Japan. Bloomberg reports:

Japan's demand for services rose in April, gains economists say are too small to prop up the nation's faltering economy.

The tertiary index, a gauge of money households and businesses spend on phone calls, power and transportation, increased 1.8 percent from March, the Trade Ministry said today in Tokyo, after being unchanged the previous month. The median estimate of 33 economists surveyed by Bloomberg News was for a 0.6 percent gain.