LONDON, Oct 12: Investors around the world are on tenterhooks to see what lasting impact the global liquidity crunch has had on the broader economy and this uncertainty has clouded the outlook for interest rates.

Next week brings a flurry of inflation data from the United States, the euro zone and Britain. Given policymakers’ commitment to keeping inflation under wraps at a time of soaring energy and food prices and patchier economic performance, these numbers may shed more light on the likely course of interest rates in these three regions.

Federal Reserve Chairman Ben Bernanke, European Central Bank President Jean-Claude Trichet and Bank of England Governor Mervyn King make separate appearances next week in the run-up to the Group of Seven meeting next weekend in Washington.

The G7 will probably be dominated by further debate on currencies, with a particular focus on the euro’s appreciation that has caused an outcry from several euro zone politicians, and on continued pressure on China to allow its tightly-controlled yuan to appreciate faster, thereby erasing some of the competitive advantage of its exporters.

This week has seen short-term lending rates ease back to their lowest in two months in the euro zone, while in the UK and the United States, benchmark three-month rates are well off their recent multi-year peaks.

“The big theme is still the liquidity squeeze that we’ve seen and that has started to ease up a bit,” said Mark Miller, senior economist at Bank of Scotland Treasury, part of HBOS.

“Having said that, I don’t think it’s right to lose sight of the inflation theme altogether,” he said.

UK, German and euro zone consumer price data are scheduled for Tuesday and US inflation data for Wednesday.

In the minutes from its policy meeting in September, the Fed said it felt comfortable cutting its federal funds target rate by half a per cent to 4.75pc without fear of inflation.

Meanwhile, the ECB’s Trichet this week has reiterated the governing council’s focus on price pressures and known inflation hawk council member Axel Weber on Friday said there may be a need for extra ECB action given heightened inflation expectations.

The BoE’s King has also talked a tough line on inflation, but this did not give the pound any kind of boost as investors are unsure of the bank’s ability to accommodate growth after all the credit market turmoil at current rates.

That said inflation readings have moderated in all three zones. The US CPI which strips out food and energy prices, is expected to have risen by 0.2 per cent, which would bring the year-on-year rise to 2.1 per cent.

UK consumer inflation is expected to have picked up modestly in Sept after falling for five straight months, up 1.9pc year-on-year, after 1.8pc in August.

“I’m sure people are watching (inflation). My personal view is that it’s not as exciting as people think because the focus in the markets today is switching from analysis of what is going on the inflation front to what is going on in the real economy,” said Commerzbank economist Peter Dixon.—Reuters