(Bloomberg) — Policymakers on both sides of the Atlantic are expected to take comfort this week as the economic slowdown is entrenched in a key underlying measure of consumer price inflation.
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In the United States, the Federal Reserve’s annual core measure of inflation, which excludes food and energy, may have fallen below 4% in August for the first time in nearly two years.
Meanwhile, the eurozone’s own annual measure of fundamental price inflation is expected to slow to 4.8% in September, the lowest level in 12 months.
Such consistent evidence reassures Fed and European Central Bank officials after a week that suggests monetary tightening may be implemented, or at least halted for the time being, respectively, to rein in inflation once and for all. The focus will shift to keeping interest rates permanently high.
But they have reason to be cautious, given the prospect that oil prices could accelerate further towards 100 barrels.
Recent increases in energy costs are already having an impact. The Federal Reserve’s overall consumer spending price index is expected to rise to one of the strongest monthly readings this year when Friday’s report is released.
The euro zone’s headline inflation rate, to be announced on the same day, is still likely to fall significantly, reaching 4.5%, a two-year low.
Bloomberg Economics says:
“Next week’s numbers are unlikely to undermine the Fed’s optimism. PCE inflation in August remained below the Fed’s target of 2% for the third straight month despite modest increases in income and spending. That said, we expect consumer confidence to show further signs of labor market weakness.”
-Anna Wong, Stuart Paul, Eliza Winger.Click here for complete analysis
Elsewhere, appearances by the Fed and ECB chiefs and interest rate decisions from Hungary to Mexico will keep investors busy.
Click here to find out what happened last week. Below is a summary of what will happen in the global economy.
USA and Canada
In the United States, the PCE report could be the last government statistics policymakers see for a while before a potential government shutdown begins on October 1. When the government was shut down in 2013, the release of employment statistics and other statistics was delayed.
Other statistics this week include new home sales, consumer sentiment and durable goods orders. The Census Bureau is scheduled to release its third estimate of second-quarter growth and benchmark revisions.
Federal Reserve Chairman Jerome Powell will host a town hall with educators, and his colleagues Neil Kashkari, Austan Goolsby, Thomas Barkin and John Williams will speak at a separate event. I’m planning to give a lecture.
Canada’s gross domestic product (GDP) rose in July after preliminary figures suggested the economy was flat for the month, supporting the central bank’s decision to keep interest rates unchanged at 5%. Statistics will be published.
Salary and job openings data are expected to show that the labor market continues to ease, although wage growth remains strong.
Asia
Bank of Japan Governor Kazuo Ueda and Deputy Governor Shinichi Uchida are scheduled to speak on Monday following the Bank of Japan’s latest policy decision on Friday.
This week, the world’s third-largest economy is scheduled to release a raft of data on Friday, including Tokyo inflation, retail sales, industrial production and labor market-related figures.
In a week when European Commission Vice-President Valdis Dombrovskis visits China, investors will also be keeping an eye on the country’s PMI data starting Friday to analyze the latest developments in China’s economic slowdown.
Australia will report the latest inflation figures on Wednesday and retail sales data on Thursday, both of which will be factored into the Reserve Bank of Australia’s policy decision next week.
Meanwhile, the Bank of Thailand is expected to continue raising interest rates on Wednesday, after which trade performance is expected to improve slightly on Friday.
Elsewhere, Singapore will release inflation data on Monday, which is likely to show a further slowdown, while Hong Kong will report on trade on Tuesday.
Europe, Middle East, Africa
ECB President Christine Lagarde will testify before the European Parliament on Monday, where she is likely to touch on last week’s last-minute decision to raise interest rates again.
Other colleagues scheduled to speak in the coming days include Banque de France Governor François Villeroy de Galhau and ECB Chief Economist Philippe Lane.
Inflation statistics from each country in the region will be in the spotlight ahead of the release of the Eurozone report, but another data highlight will be Germany’s latest Ifo business confidence reading.
Europe’s biggest economy may now be contracting, and the index released on Monday will show whether there are any optimistic signs that growth will improve.
Meanwhile, the UK, which surprised investors last week by leaving interest rates unchanged rather than raising them, will release its final GDP figures for the second quarter on Friday.
Looking east, Hungary’s central bank is poised to cut its key policy interest rate by its fifth month on Tuesday. Czech authorities may still suspend action the next day.
In Russia, macroeconomic data, including industrial production statistics, will be released on Wednesday and is likely to show a strong recovery as President Vladimir Putin’s war economy ramps up defense production to support the invasion of Ukraine.
The next day, Bank of Russia Governor Elvira Nabiullina, Kremlin economic aide Maxim Oreshkin and Finance Minister Anton Siluanov are scheduled to speak at the Moscow Financial Forum.
Turning to the unexpected slowdown in the annual inflation rate in August, and expectations that disinflation will increase in the fourth quarter due to food price-based effects, the Bank of Ghana raised its key interest rate on Monday. It is likely to be left unchanged.
On Tuesday, Morocco’s central bank will make its first interest rate decision since the devastating earthquake. The central bank may decide not to raise interest rates even though the inflation rate remains at 5%, above the benchmark rate of 3%.
Saudi Arabia’s foreign exchange reserves fell in July to their lowest level since 2009. Investors will be watching the August numbers closely on Thursday to see if the trend continues or if the government chooses to build up reserves.
latin america
In Brazil this week, the central bank released minutes of its Sept. 20 interest rate decision, cutting the key interest rate to 12.75% on Tuesday. The quarterly inflation report, to be released on Thursday, will update key scenarios and forecasts from year-end to 2024.
Outside of Brazil, inflation is likely to rise by nearly 5 percentage points in mid-September, as last August’s -0.73 percentage point falls out of the series. Analysts expect the unemployment rate to approach an eight-year low in August as employment levels near record levels, none of which has yet triggered wage pressures.
Argentina’s preliminary GDP figures for July are likely to be negative for the fourth consecutive year, as South America’s second-largest economy falls into recession.
Many indicators, including Chile’s industrial production and retail sales, are expected to remain negative in August, but there may be signs of a recovery that will outpace the region in 2024.
At the end of this week, it became almost certain that the Bank of Mexico and the Bank of Colombia would leave their key interest rates unchanged.
Colombia’s Finance Minister Ricardo Bonilla will insist on cuts, but neither is yet ready to begin reversing the record-breaking cycle. Banxico expects the rate to remain at 11.25% until 2024, although local economists expect it to be lowered from next month’s 13.25%.
–With assistance from Tony Halpin, Monique Vanek, Robert Jameson, Paul Wallace, Paul Jackson, Laura Dillon Kane, and Milda Septite.
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