US Inflation Will Guide Fed to Prepare for Next Hike: Eco Week Ahead

(Bloomberg) — U.S. inflation data next week could give the Federal Reserve mixed signals ahead of a potential third straight interest rate hike, with a broad measure of consumer prices likely to ease even as an indicator of underlying pressures accelerate.

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The government report is expected to show an 8 percent increase in the overall consumer price index from the same month last year, down from 8.5 percent in July but still historically high. Excluding energy and food, the consumer price index is expected to have risen 6.1% from 5.9% in the year to July.

Tuesday’s numbers, in conjunction with recent data showing healthy job growth, increased job vacancies and resilient household spending, will help shape Fed officials’ views on whether to go ahead with another 75 basis point rate hike. the interest rate.

In recent speeches, US central bankers stressed that high inflation would indeed require higher borrowing costs, which dampen demand, although they left the door open to the size of the increase at the end of their September 20-21 meeting. Politicians are now in a blackout period.

“We’re in it for as long as it takes to reduce inflation,” Fed Vice Chairman Lael Brainard said on a conference call Wednesday. “Monetary policy will need to be tight for some time to provide confidence that inflation is coming down to target.”

In addition to the CPI, the US economic data calendar is heavy. Reports include producer prices, industrial production, regional production surveys and consumer sentiment.

Retail sales data will hint at the pace of household demand for goods amid higher inflation, higher interest rates and a shift to spending on services and experiences. Economists forecast a solid gain in retail purchases, excluding gasoline and motor vehicles.

What Bloomberg Economics Says:

“August inflation gauges likely to be very soft, but that won’t change the bottom line: The ‘body’ of data that Fed Chair Jerome Powell will follow shows little sign of the economy cooling, and perhaps even some acceleration.”

–Anna Wong, Andrew Husby and Eliza Winger, Economists. For full analysis click here

Elsewhere, data showing faster UK wages and inflation is due just as the country continues to mourn its Queen and Russia’s central bank may cut interest rates.

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

Europe, Middle East, Africa

As the United Kingdom continues a national period of mourning for the loss of Queen Elizabeth II, the Bank of England postponed by a week its policy meeting and a possible aggressive rate hike that had been scheduled for Thursday.

The delay will give officials more time to weigh the data, which will further illustrate the effects of the country’s cost-of-living crisis. That includes Tuesday’s payrolls data, which is expected to show a rise, and Wednesday’s inflation, which could drift further above 10%.

The policymakers of the European Central Bank, who have just implemented an unprecedented tightening of monetary policy with an increase of three-quarters of a point, will make several speeches. Among them is Executive Board member Isabelle Schnabel at a research conference organized by the central bank.

Among the potentially noteworthy data are German investor confidence on Tuesday and European industrial production on Wednesday, both of which could signal how the economy is responding to the lack of gas from Russia.

Further north, inflation in Sweden is expected to jump by more than a percentage point to nearly 10%. That will inform Riksbank officials, who are considering whether to raise rates by 75 basis points next week.

On the other hand, Russia’s central bank is expected to cut interest rates again on Friday as inflation slows and so does the economy.

Data in Israel on Thursday will show how widespread the price increase has been, a month after inflation unexpectedly jumped to 5.2 percent. The Bank of Israel now believes there will be no significant rate cut before the end of the year and is expected to continue its aggressive rate hikes.

Data for Ghana on Wednesday is likely to show that inflation has accelerated to more than three times the ceiling of the central bank’s 10% target due to currency weakness. The bank next meets on September 20 – and will announce its decision on September 26 – after raising the benchmark rate by the biggest margin since 2002.

Data on Thursday is likely to show that Nigerian inflation has accelerated to more than twice the central bank’s 9% ceiling, while the naira continues to fall. The rise could prompt it to raise rates for a third consecutive meeting on September 27.

Asia

In Japan, the yen’s fall to fresh 24-year lows is likely to keep investor interest closely focused on comments from senior officials on any further moves and whether the possibility of currency market intervention is closer.

Thursday’s figures will show the impact of the weaker yen on the trade balance of the world’s third-largest economy.

In China, the central bank is expected to keep the key interest rate unchanged on Thursday after last month’s surprise cut. Key economic indicators on Friday will be closely watched to see the extent of the damage from the Covid lockdown and power shortages in August.

On the downside, the jobs data will show how the recovery is holding up, with the Reserve Bank of Australia now more likely to return to smaller rate hikes.

New Zealand’s economy is expected to have returned to growth as it weathers an ongoing wave of half a percentage point interest rate hikes, with the Reserve Bank of New Zealand poised to push ahead with more.

On Thursday, Sri Lanka will report second-quarter GDP data that is likely to show a further contraction in the crisis-hit economy.

In South Korea, Friday’s jobless numbers will show how tight the country’s labor market remains.

Latin America

In Argentina, all signs point to a spike in inflation spreading in August, with the year-on-year footprint just under 80%. One local consulting group predicts year-end reporting as low as 100%.

Central bank surveys of economists in Brazil and Chile may reflect a sharp downward move in August inflation readings in the former and a huge September 6 rate hike by the Banco Central de Chile in the latter.

Midweek data may show a jump in core retail sales in Brazil, while broad readings continue a year-long decline. Expect Brazil’s GDP proxy data to show that the strong finish to the second quarter continued into July.

The week will also provide an update on Latin America’s hottest economy as Colombia releases July reports on retail sales, manufacturing and industrial production. Expect a 55th straight monthly trade deficit as imports linger near a 30-year high.

Monthly reports from Peru include August unemployment figures for the country’s capital, Lima, as well as July GDP figures. The economy lost some momentum in the second quarter and is headed for a challenging second half.

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