Stubborn core inflation helps explain some of the Fed’s jitters

(Bloomberg) — Underlying price pressures in the United States are rising at an alarming pace, leaving Federal Reserve officials worried about signaling their efforts to combat inflation.

Most read from Bloomberg

The consumer price index, which excludes food and fuel and is seen by economists as a better gauge of underlying inflation, was expected to rise 0.3% for a third straight month.

Core CPI is expected to rise 4.1% compared with last October, which would match September’s annual gain and end a six-month slowdown in price growth.

While considerable progress has been made since hitting multi-decade highs a year ago, the pace of inflation remains high and above the Fed’s target. Policymakers are pressing ahead deliberately – and are not ruling out further increases – after pausing tightening at consecutive meetings to keep the benchmark interest rate at a 22-year high.

“If further tightening is appropriate, we will not hesitate to do so,” Chairman Powell said Thursday. “However, we will continue to proceed with caution that allows us to manage the risk of being misled by months of good news.” Data, and Risks of overtightening. “

Read more: Powell says Fed needs to be careful and won’t hesitate to raise rates if needed

Central bank presidents expected to speak next week include Chicago Fed President Austen Goolsby and Fed Governor Philip Jefferson.

Tuesday’s consumer price index report is the first in a series of important U.S. indicators that will give us a sense of how the economy is performing at the start of the fourth quarter. Retail sales data on Wednesday are expected to show consumers scaled back spending in October after a series of adjustments. Reliable monthly down payment.

Reports later this week are likely to show declines in industrial production and housing starts.

Looking north, Canada will release home sales data for October, after prices fell in September for the first time in six months as interest rates rose.

Bloomberg Economics’ view:

“We think Fed officials are likely to maintain a tightening bias until monthly core CPI has been running at a sustained pace of 0.2%-0.3% for at least six months. The low end of that range only occurred in the summer, and core CPI has since Climbing toward the upper limit, that’s more consistent with 3% annual inflation than 2%.”

—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists.For the full analysis, click here

Elsewhere, Chinese economic reports, data that could show a contraction in Japan, slowing UK inflation and new regional forecasts for Europe will be in focus.

Click here to see what happened last week, and here’s our summary of what’s coming to the global economy.


The Asia-Pacific Economic Cooperation meeting takes place all week, with U.S. President Joe Biden and Chinese leader Xi Jinping set to meet in San Francisco, an event likely to be closely watched by global investors.

China is expected to keep its one-year medium-term lending facility rate at 2.5% on Wednesday and report a range of data from industrial production to retail sales, providing an updated snapshot of the state of the world’s second-largest economy.

On the same day, Japan’s third-quarter gross domestic product data is expected to show the economy fell into contraction again after a stronger-than-expected second quarter, and the country will report on trade conditions on Thursday.

Marion Kohler, acting assistant governor of the Reserve Bank of Australia, spoke on Monday and Tuesday’s data may show that business confidence is better than household confidence in Australia amid rising interest rates.

Across the Tasman Sea, Reserve Bank of New Zealand Assistant Governor Karen Silk will give a speech on the bank’s balance sheet on Tuesday.

Elsewhere in the region, Sri Lanka is likely to raise taxes in its budget on Monday to meet conditions for a $3 billion International Monetary Fund bailout package, while India’s inflation rate is expected to slow further in October, approaching the central bank’s target range .

The Philippine central bank will release its latest policy decision on Thursday, and Malaysia will release final third-quarter GDP data on Friday.

Europe, Middle East, Africa

UK data will be a highlight. Pay data is likely to be softer on Tuesday, while inflation the next day could slow to a two-year low from the fastest in the Group of Seven.

Both results support the view from Bank of England chief economist Huw Pill that further interest rate hikes are not needed. Andrew Bailey pushed back against the prospect of an early interest rate cut on Wednesday, days after data showed the economy stalled in the third quarter despite avoiding a recession.

In Brussels, new European Union forecasts on Wednesday will show a revised outlook, with the region likely to widen its economic contraction. The release will also include fiscal forecasts, which will become even more important given the EU’s return to the 3% deficit rule in 2024.

Italy is particularly worrying for officials, especially after its government unveiled a more accommodative fiscal stance. Moody’s Investors Service, which has the lowest investment rating on the country and a negative outlook, gave its view on the possible latest situation on Friday.

Revised data on Eurozone GDP and inflation will also be released, as well as industrial production for September.

Among a host of ECB speakers, President Christine Lagarde will turn heads at a meeting on Friday.

Looking north, Swedish inflation will be in focus for investors on Tuesday. Riksbank officials may overlook the possible acceleration of the CPIF measures they are targeting.

In the East, third-quarter GDP data will be a highlight. Whether Hungary’s economy under Prime Minister Viktor Orban can emerge from a year-long recession is a close call, with Poland also due to release data.

Data from Russia on Wednesday are likely to show that despite international sanctions over its invasion of Ukraine, the economy continues to rebound and could grow by more than 5%, its fastest pace since the war began.

Also on Wednesday, investors will get the first sign of how the war with Hamas is affecting prices in Israel. Analysts polled by Bloomberg expected inflation to fall further last month, to 3.7%.

Read more: War budget leaves Netanyahu caught between markets and politics

In Africa, Ghana’s Finance Minister Ken Ofori-Atta will unveil a 2024 budget on Wednesday, a plan expected to rein in debt and boost revenue as part of the conditions for a $3 billion International Monetary Fund bailout. Data on the same day are expected to show inflation slowed for the third consecutive month in October to 36%.

In Nigeria, continued depreciation of the naira is likely to cause annual inflation to accelerate to over 27% in October from 26.7% a month ago.

latin america

In the final economic release before Argentina elects a new president, government data is likely to show annual inflation jumped above 145% last month. Economists surveyed by the central bank expect inflation to surge again in November and December, reaching 181% by the end of the year.

The Central Bank of Chile released the minutes of its decision on October 26 to slow down the pace of easing on Tuesday. The committee noted that deteriorating global financial conditions and rising global geopolitical uncertainty are weakening the peso.

Peru’s proxy GDP data on Wednesday should confirm that the country’s economy shrank for a third consecutive quarter in the three months to September as domestic demand remained weak and China’s woes weighed on exports.

Brazil’s September GDP proxy data may show a surprise slowdown in economic growth in 2023. While consumers in Latin America’s largest economy are feeling the impact of double-digit interest rates, government spending, federal aid to low-income households and a tight labor market are helping to drive growth. to support demand.

Columbia’s focus will be on its third-quarter output. Analysts believe an economic rebound in the first three months will avoid a technical recession and predict that only Brazil and Mexico among the region’s major economies will expand faster in 2023.

–With assistance from Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek, Paul Wallace, Robert Jameson, Yuko Takeo and Tony Halpin.

(Europe, Middle East, and Africa section updated with Israel)

Most read from Bloomberg Businessweek

©2023 Bloomberg

Source link

Leave a Comment