Ripples of Fed’s Inflation Disquiet Keep Spreading: Eco Week
The shifting sands of global inflation will focus central bankers from Ottawa to Wellington in coming days after a month of mounting concern about consumer prices among counterparts including the U.S. Federal Reserve.
The Bank of Canada, which is already in the vanguard of Group of Seven economies dialing back stimulus, will continue that on Wednesday, with officials seen cutting weekly bond purchases by a third. That further step toward normalizing monetary policy could eventually presage interest-rate increases.
The same day, New Zealand’s central bank may signal earlier tightening, and Chilean monetary officials are anticipated to proceed with a hike.
Meanwhile the Bank of Korea on Thursday will also possibly reveal clues on plans for an initial rate increase, and the next day, Bank of Japan officials might be more sanguine as they focus on their green lending program but could still raise their forecast for consumer prices this year.
The backdrop all such institutions are facing is a global post-pandemic rebound that some officials worry could morph into a lasting inflation shock. In June, the Fed brought forward its expectations of rate hikes, and even the perennially dovish European Central Bank has acknowledged that prices might grow more rapidly than predicted in coming years.
“There is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an earlier-than-expected tightening of U.S. monetary policy,” Kristalina Georgieva, the International Monetary Fund chief, wrote in a blog post last week. “Other countries face similar challenges.”
Elsewhere, China will release gross domestic product data, U.K. inflation may turn out to have reached the fastest since 2018, the U.S. consumer-price report for June will also be released and Fed Chair Jerome Powell will testify in Congress.
What Bloomberg Economics Says:
“Reopening categories will again dominate in the June CPI report, leaving the headline at a red-hot 5.0% year-over-year. Yet the fever may be starting to break, as Bloomberg Economics expects the core ex-food-and-energy index to post its softest month-over-month gain since March.”
--Andrew Husby, U.S. economist. For full analysis, click here
Click here for what happened last week and below is our wrap of what is coming up in the global economy.
U.S. and Canada
In the U.S., investors are watching for the latest consumer-price data due out on Tuesday for signs of whether cost pressures are lasting. Other reports in focus include retail sales -- which will provide a reading of spending strength -- as well as industrial production and business inventories.
Fed watchers will be awaiting Powell’s testimony before the House Financial Services Committee on Wednesday, and the Senate Banking panel a day later. His appearance before Congress is part of the central bank’s semi-annual report to lawmakers on economic and financial developments and monetary policy.
The Fed’s Beige Book on Wednesday will also reveal perspectives of businesses on the U.S. economy.
Further north, the Bank of Canada is forecast by economists to cut its weekly bond purchases to C$2 billion ($1.6 billion) per week on Wednesday, ahead of an expected surge in economic activity. That figure is seen falling further to about C$1 billion by the end of this year or early 2022.
- For more, read Bloomberg Economics’ full Week Ahead for the U.S.
Europe, Middle East, Africa
Just as with the U.S., consumer prices will be a key focus in Europe this week, with data for June due to be published in the U.K., Romania, Poland, Denmark and Sweden, to name a few. Final numbers are also due for France, Germany and the euro zone.
Results are likely to vary across the continent. Economists expect Britain’s inflation rate to reach 2.2%, the fastest pace since 2018, while in Sweden the outcome might show a temporary drop to 1.3%. U.K. labor market data due may also be relevant here, indicating if wage pressures are building.
With that backdrop, policy maker comments in both those countries are also likely to attract attention. Riksbank Governor Stefan Ingves will feature in a panel discussion on Tuesday at a conference focused on inflation, while Bank of England policy makers Dave Ramsden and Michael Saunders will speak on following successive days.
Other data of interest include euro-zone industrial production for May, anticipated by economists to show a small decline after two months of gains.
Elsewhere in the wider region, Turkey’s central bank is expected to leave its benchmark interest rate unchanged for a fourth month on Thursday, even after consumer-price growth accelerated faster than all estimates in June, to 17.5%.
Governor Sahap Kavcioglu is trying to hold the line, declining to raise the benchmark interest rate from 19% but adopting a more hawkish tone in communications and pledging to keep it higher than inflation. He faces pressure from President Recep Tayyip Erdogan, who has said he wants lower borrowing costs this summer.
- For more, read Bloomberg Economics’ full Week Ahead for EMEA
The Reserve Bank of New Zealand is likely to stand pat on Wednesday, but could continue to ramp up its hawkish tone as the economy’s recovery outpaces expectations.
Central bank watchers will also be looking for any hints over a policy normalization timetable from the Bank of Korea on Thursday, with any dissensions likely to ramp up expectations of a near-term rate hike.
Consumer confidence data out of Australia will show how the latest Sydney lockdown has affected sentiment, while jobless figures on Thursday will show how the labor market is dealing with continued closed borders.
China releases second-quarter GDP data on Thursday that are set to show a robust 8% expansion from a year earlier.
And on Friday, the Bank of Japan will unveil more details of its climate measure and how it will try to nudge banks to make green loans. It’ll also release its latest price and growth forecasts as Japan enters another state of emergency ahead of an Olympics without spectators.
- For more, read Bloomberg Economics’ full Week Ahead for Asia
The recovery has been uneven and slack in the economy remains, yet Mexico is rebounding from the coronavirus, and analysts expect some robust readings Monday for industrial output, manufacturing and same-store sales.
Brazil’s economic activity data, expected Wednesday, may surprise as May’s figures better April’s results, despite the drag from the pandemic, rising inflation and borrowing costs.
On Wednesday, a third Latin American economy may join Brazil and Mexico in tightening monetary policy.
Chile’s central bank chief, Mario Marcel, last month was quite clear that a rate increase is “certainly coming this year,” with the economy back at pre-pandemic levels and inflation hovering just below the top of the bank’s target range. Analysts see a distinct possibility of a quarter-point increase to 0.75% here.
On Thursday, Colombia posts retail sales, industrial production and manufacturing for May. Argentina’s national inflation figures and those for Buenos Aires should see monthly rates of over 3% and just under 50% on an annual basis. Data from Peru should show a pick-up in activity in May while unemployment in the capital, Lima, remained in double-digits in June.
- For more, read Bloomberg Economics’ full Week Ahead for Latin America
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