US inflation to pose new test for Powell's Fed: Eco week ahead

(Bloomberg) — The Federal Reserve is getting a new look at its inflation challenge this week amid expectations that U.S. prices will continue to rise at a persistently brisk pace over the past month.

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The October consumer price index report is due Thursday and is expected to have risen 7.9 percent from a year earlier, only a slight slowdown from the 8.2 percent recorded in September, according to the median forecast of economists polled by Bloomberg News .

Exclude food and energy and the index is likely to fall to 6.5% after September’s 6.6% rise. That’s still well above the 2% inflation the Fed is targeting on a stand-alone gauge basis.

On a monthly basis, the key measure is expected to have risen 0.5%, matching the average pace since last October and showing that the Fed has made little progress in stemming runaway inflation with its string of huge interest rate hikes.

Fed officials, led by Chairman Jerome Powell, raised their key interest rate on Nov. 2 by 75 basis points for the fourth consecutive meeting.

Although they hinted at a potential willingness to slow the pace of increases when they meet in December, that will ultimately depend on whether the outlook for inflation cools. Policymakers are already signaling that interest rates may reach a higher level than previously thought.

What Bloomberg Economics Says:

“On the face of it, headline readings that exclude food and energy should contain good inflation news for Fed doves. Price pressures in both basic goods and services are likely to ease.”

–For more, read the entire week ahead for the US

Rising inflation is sure to have implications for lawmakers as American voters head to the polls on Tuesday. Polls show Democrats will lose control of the House and possibly the Senate.

Click here for what happened last week and below is our overview of what’s to come in the global economy.


Japan is expected to give details early this week of an additional $200 billion budget to fund its latest economic stimulus package. How much will be financed by new bond issuance will be closely watched as the country adds to the worst public debt in the developed world.

Japan’s wages and spending data on Tuesday are likely to show a continued decline in household purchasing power and spending as inflation picks up. Daily intervention data for September is expected to show just one entry into markets to support the yen before Japan steps up its strategy in October.

Reserve Bank of Australia deputy governor Michelle Bullock sheds light on the latest thinking on policy as the central bank appears to be settling on an extended strategy of regularly raising interest rates.

China is due to report trade data on Monday and inflation data on Wednesday, with weakening factory prices and subdued consumer prices another sign of weakness in momentum.

Indonesia releases GDP data on Monday and the Philippines on Thursday.

Europe, Middle East, Africa

The week begins with a meeting of the financial leaders of the Eurozone in Brussels. They are likely to bemoan the economic woes of a region that appears headed for recession while consumer prices are at record highs.

A host of European Central Bank officials are expected to speak, including President Christine Lagarde, Vice President Luis de Guindos and Chief Economist Philip Lane.

In the U.K., third-quarter manufacturing on Friday is expected to show a contraction of 0.5 percent, evidence that the economy is already in a recession that the Bank of England predicts could rival that of the 1990s. The BOE’s four rate-setters – including chief economist Hugh Peel – will be watched for any indication of what the UK central bank might do at its next meeting after its latest 75 basis point hike.

In Eastern Europe, the central banks of Poland and Romania are expected to raise interest rates to 7% and 6.75% respectively. Serbia will also have to decide whether to switch days after striking a deal with the International Monetary Fund.

Data from Ghana on Wednesday may show annual inflation in October was nearly four times above the central bank’s 10% ceiling target. Inflation in Egypt for October was little changed from the previous month’s 15% on Thursday, in data that covers a period before the pound’s latest devaluation.

Latin America

Chile released a set of economic data on Monday, including trade and copper exports, followed by October inflation data on Tuesday, which are expected to show a second straight annual decline from a cycle peak of 14.1% in August.

In Brazil, election-related government stimulus spending and tax cuts should bolster September’s retail sales figures. Expect a dramatic slowdown in consumer prices to continue into October, with early estimates of 6.4%, nearly 600 basis points below April’s reading.

Analysts continued to mark down their growth forecasts for the third quarter of Colombia’s economy, suggesting strong September results for manufacturing, industrial production and retail sales.

Peru’s central bank chief Julio Velarde last week sounded very much like a politician ready to break a record tightening cycle that has pushed the prime rate to a two-decade high of 7%. Both inflation and the economy are slowing.

The focus of a busy week in Mexico will be entirely on the full set of consumer price data and the central bank’s interest rate decision on Thursday.

While headline inflation is forecast to slow from its peak in the third quarter, the headline readings are the ones worrying policymakers, led by central bank chief Victoria Rodriguez. That, along with a surprisingly strong third-quarter GDP report and a dovish Fed, should prompt Banxico to raise its key rate to a record 10%.

–With help from Zoe Schneeweiss, Malcolm Scott and Robert Jameson.

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