Fed’s Sanguine Inflation View Tested in New Data: Eco Week Ahead
U.S. consumer prices probably rose in July at the slowest pace in five months, marking a deceleration that stops short of full relief from cost increases weighing on sentiment and driving political debate.
The government’s index is seen climbing 0.5%, according to the median projection in a Bloomberg survey of economists ahead of data this week. Stripping out volatile food and energy components, the core measure of prices is forecast to rise 0.4% after a 0.9% advance in June that matched the largest month-over-month gain since 1982.
The pace of increase already exceeded expectations for four straight months through June. The recent upswing in inflation has been mostly linked to categories associated with the broader reopening of the economy, bolstering the view of most Federal Reserve policy makers that such gains are temporary.
Other prominent U.S. data releases this coming week include June job openings and July producer prices.
It’s a light week for U.S. central bank speeches with only a few making public remarks, including Atlanta Fed President Raphael Bostic and Richmond’s Thomas Barkin on Monday, and Kansas City Fed chief Esther George on Wednesday.
What Bloomberg Economics Says:
“The labor market made further progress in July toward our assessment of conditions that would satisfy the start of QE taper. As for the other leg of the Fed’s mandate, we expect another pickup in price inflation as narrow reopening pressures -- and some bulkier categories -- keep the CPI running uncomfortably hot in July.”
--Andrew Husby, Eliza Winger and Niraj Shah. For full preview, click here
Elsewhere, central banks in Turkey, Mexico and the Philippines are set to meet and China publishes factory and inflation data.
Click here for what happened last week and below is our wrap of what is coming up in the global economy.
Europe, Middle East, Africa
A summer holiday lull across Europe means that comments from central bankers are likely to be scarce in coming days and weeks, leaving economic data as the main focus for investors to chew on.
Highlights there include second-quarter gross domestic product in Russia on Friday. This is likely to show a growth rebound of almost 10% in the country’s first growth spurt since the pandemic took hold.
A day earlier, the U.K. will also report data for the same period, adding June statistics to numbers already released to provide a picture of expansion in the full three-month period. With lockdown measures easing, the economy probably rebounded with growth of almost 5% after a contraction at the start of the year.
The same day in the euro zone, industrial production data for June are expected by economists to show stagnation, weighed down by semiconductor shortages.
In Romania, central bank Governor Mugur Isarescu will hold a press conference on Tuesday to present new forecasts for inflation, likely to show faster price growth and signals on the timing of interest-rate hikes.
The key central bank decision in the region this week will be in Turkey. Officials meet on Thursday after renewed calls from President Recep Tayyip Erdogan to cut interest rates, putting Governor Sahap Kavcioglu, who’s promised to maintain a positive real interest rate, in a bind. Inflation is hovering just below the central bank’s benchmark rate of 19%.
Analysts expect inflation data in Egypt on Tuesday to show at least temporarily quicken after rises in fuel prices and electricity in recent weeks, while remaining within the central bank’s target range. And in Ghana on Wednesday, inflation will probably also have remained close to the midpoint of the central bank’s target band of 6% to 10%.
- For more, read Bloomberg Economics’ full Week Ahead for EMEA
The Tokyo Olympics wraps up Sunday, leaving Japan with a far smaller-than-hoped-for economic dividend.
Chinese factory and consumer inflation are likely to show a welcome slowing on Monday.
South Korean jobless figures will indicate if a strong recovery is starting to soften just as the Bank of Korea mulls a rate hike later this month.
Several measures of Australian consumer confidence will shed light on the mood Down Under as lockdowns continue there.
GDP figures from the Philippines for the second quarter, as well as from Malaysia and a final reading from Singapore for the same period, may send flattering signals of economic growth before the region saw its worst phase of the pandemic.
Philippine authorities estimate that economic losses from the current strict lockdown in the Manila capital region and other areas could reach 150 billion pesos ($2.98 billion) a week, the Philippine Star reported Sunday, a projection that’s 43% higher than a previous estimate.
The Philippines rate decision could offer hints of further easing as inflation moderates there.
- For more, read Bloomberg Economics’ full Week Ahead for Asia
The full-month and bi-weekly readings on Mexican consumer prices out Monday may show slowing but perhaps not enough to sideline Banxico at its Thursday meeting.
On Tuesday, Brazil’s now very hawkish central bank posts the minutes of last week’s meeting where it raised the key rate a full-point to 5.25% and vowed to match that pace next month en route an ‘above-neutral’ policy rate. Look for Brazil’s July inflation report to show a 14th straight monthly increase to roughly 500 basis points over target.
Supply bottlenecks are expected to weigh on Mexico’s June industrial production figures out Wednesday while retail sales in Brazil for the same month may be the weakest of the quarter.
Stubbornly elevated inflation -- and moreover above-target core inflation -- may have exhausted the patience of Mexico’s central bank. The odds are that Banxico raises its key rate for a second straight meeting by a quarter-point to 4.5%.
Most observers see Peru’s central bank looking past July’s jump in prices to hold the key rate at a record-low 0.25% on Thursday.
Forecasts for Brazil’s June economic activity data out Friday are upbeat.
- For more, read Bloomberg Economics’ full Week Ahead for Latin America
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