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(Bloomberg) — The pulse of U.S. inflation likely continued to slow early in the year, helping fuel expectations that the Federal Reserve will find interest rate cuts more palatable in the coming months.
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The core consumer price index, a measure that excludes food and fuel to paint a better picture of underlying inflation, is expected to rise 3.7% in January from a year earlier.
This would mark the smallest year-over-year advance since April 2021 and would underscore the progress Fed Chair Jerome Powell and his colleagues have made in combating inflation. The headline CPI likely rose less than 3% for the first time in nearly two years, economists forecast Tuesday’s report will show.
While acknowledging that progress, policymakers have been cool to the idea that rates could be cut as early as next month.
Read more: Federal Reserve Officials Join Chorus to Temper Hopes for Rate Cuts Soon
His patience is rooted in an economy that is showing green lights, the biggest of which is the job market. Durable job growth has sustained consumer spending. A separate report on Thursday is expected to reveal another increase in retail sales, excluding motor vehicles and gasoline.
Cooling inflation, along with expectations that borrowing costs will fall this year, explain the recent improvement in consumer confidence. A University of Michigan survey to be released Friday is expected to show a sentiment index remaining near the highest level since July 2021.
Investors will also closely monitor Fed officials who will speak in the days following the CPI data, to assess the timing of any future rate cuts. Among those on the calendar are regional bank presidents Raphael Bostic of Atlanta and Mary Daly of San Francisco, who will vote on policy this year.
What Bloomberg Economics says:
“In deciding when to start cutting rates, the Federal Reserve will have to reconcile the data it has on hand – which shows inflation moving rapidly toward the 2% target – with the risks that inflation flares up again. or the labor market will weaken even further. abruptly. “Next week’s data will influence that decision, but will not provide a definitive answer.”
—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For the full analysis, click here
Looking north, Canadian home sales will reveal whether the market continues to heat up ahead of expected mid-year rate cuts. Data on home construction and manufacturing will also be released.
Global highlights this week will include Japanese gross domestic product, UK inflation and wages, and testimony from the head of the eurozone central bank.
Click here to see what happened last week and below you’ll find a summary of what’s coming up for the global economy.
Asia
Japan’s economy is expected to recover from its dismal performance over the summer, providing another signal for the Bank of Japan as it prepares to end its negative rate policy.
Figures released on Thursday will also confirm that Japan has fallen to the world’s fourth-largest economy, behind the United States, China and Germany.
China’s markets will be closed for Lunar New Year celebrations and no major releases have been scheduled.
Reserve Bank of India Governor Shaktikanta Das, who maintained a hawkish stance at Thursday’s rates meeting, could see some progress in his fight against inflation at the start of the week, with prices expected to rise consumption have grown at a slower pace in January. However, this probably won’t be slow enough for talk of a turnaround.
The Philippine central bank is expected to keep rates steady on Thursday after prices continued to weaken there as well.
Today’s Australian employment figures are seen to show a return to growth after December’s losses.
Singapore will revise its gross domestic product figures ahead of trade data the following day.
RBNZ Governor Adrian Orr sets out his latest position on policy and 2% inflation in a speech on Friday morning, with Malaysia’s GDP figures closing out the week.
Europe, Middle East, Africa
UK data will be the focus. Pay figures on Tuesday may show the weakest wage pressures since 2022, encouraging Bank of England officials who, like their global peers, are pivoting towards rate cuts.
Authorities will also examine an expected rise in inflation in the headline gauge and in the core measure that excludes volatile items such as energy, in data due on Wednesday.
The next day, the GDP will signal how the BOE tightening is affecting growth. Economists estimate that the United Kingdom stagnated in the fourth quarter, narrowly avoiding a recession for now.
January inflation data will also be released across the region this week:
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Consumer price growth in Switzerland likely slowed to 1.6%, while Denmark will release equivalent figures.
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In Eastern Europe, inflation is expected to have weakened markedly in Poland and the Czech Republic, while it has increased slightly in Romania.
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In Ghana, the rate is likely to have fallen from 23.2% the previous month, while Nigeria’s reading may have accelerated from 28.9% amid currency weakness.
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And in Israel, inflation is expected to have slowed to 2.7%.
A series of fourth-quarter GDP figures are also expected, and growth in the Eastern European and Norwegian economies is also likely to have remained subdued.
Eurozone industrial production on Thursday is a high point in the monetary region, with a fourth monthly decline in December forecast by economists amid a drop in factory output in economies such as Germany.
The appearances of political leaders will attract attention. European Central Bank President Christine Lagarde will testify before lawmakers on Thursday, while multiple events with her colleagues are also scheduled.
Speaking this weekend, ECB Governing Council member Fabio Panetta said “the time to reverse the monetary policy stance is fast approaching,” warning against waiting too long for rate cuts.
In Norway, Governor Ida Wolden Bache will deliver her annual address to the supervisory board of Norges Bank.
A handful of rate decisions are on the calendar across the region:
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In Romania on Tuesday, the central bank will likely keep its rate at 7% as investors look for clues about possible cuts.
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Zambian officials are set to raise borrowing costs on Wednesday to support a battered currency and curb rising price pressures.
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On the same day, Namibian authorities will likely leave borrowing costs unchanged, in line with South Africa’s pause last month.
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And on Friday, the Bank of Russia could remain on hold after Governor Elvira Nabiullina indicated in December that the key rate will remain elevated for an extended period to cope with inflation that is almost double the 4% target.
Latin America
The Carnival holiday marks a quiet start to the week, but Argentina returns on Wednesday to publish its January inflation report.
Consumer prices probably rose 21.9% last month, according to economists surveyed by the central bank, up from 25% in December. That forecast implies an annual rate of more than 250%, up from 211% at the end of 2023.
Inflation has skyrocketed following President Javier Milei’s 54% devaluation of the peso and the elimination of price controls on hundreds of everyday consumer products.
Colombia publishes a series of data that underlines the precipitous slowdown of what had been one of the bright lights of post-pandemic Latin America.
Industrial production, manufacturing and retail sales have been negative since March, while fourth-quarter output was likely down from the previous three months. Full-year GDP growth is likely to barely exceed 1%, well below the 2021 and 2022 readings of 11% and 7.5%.
Brazil releases rough GDP figures for December ahead of the full quarterly and annual report due out on March 1, while Peru releases December economic activity data along with January unemployment for Lima, the capital and largest city.
Finally, the Chilean central bank delivers the minutes of its January decision to apply a cut of 100 basis points, up to 7.25%. Economists surveyed by the central bank believe it will reach 4.75% by the end of the year and inflation will return to 3%.
–With assistance from Piotr Skolimowski, Robert Jameson, Monique Vanek, Brian Fowler, Abeer Abu Omar, Tony Halpin and Laura Dhillon Kane.
(Updates with Panetta in the EMEA section)
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