Underlying US inflation likely experienced a significant increase in January, according to the Federal Reserve’s preferred metric, signaling a challenging road ahead in managing price pressures. The core personal consumption expenditures (PCE) price index, which excludes food and energy costs, is anticipated to rise by 0.4% compared to the previous month. This marks the second consecutive monthly acceleration for a measurement that has been gradually declining over the past two years.
In addition, when looking at the data over a three- or six-month period, both timeframes show a rebound above 2% following falling below the Fed’s target in December. Despite this, Federal Reserve officials have emphasized that they are not in a hurry to lower borrowing costs, and any rate adjustments will only occur once they are confident that inflation is consistently decreasing.
Upcoming economic indicators, such as the US government’s second estimate of fourth-quarter growth, durable goods orders, and the Institute of Supply Management’s manufacturing gauge for February, will offer further insights into the state of the economy. Additionally, figures for new- and pending-home sales in January, along with separate measures of consumer sentiment from the Conference Board and the University of Michigan, will provide updates on the housing market and consumer outlook.
Bloomberg Economics offers analysis on the potential path ahead, anticipating a jump in monthly PCE inflation following recent reports of higher consumer price and producer price indexes. While this may not ease the Fed’s concerns entirely, temporary factors and specific price increases will likely contribute to the January jump. Policymakers will likely focus on cost-of-living adjustments and an unsustainably high nonfarm-payroll print when considering the expected gain in personal income.
In terms of international developments, Canada is set to release its growth data for the fourth quarter, with preliminary numbers suggesting a rebound. Inflation reports from the eurozone, Japan, and Australia will also be closely monitored, together with the upcoming meeting of G20 finance ministers and central bankers in Sao Paulo.
Asia: Mixed Inflation Data and Economic Indicators
In Australia and Japan, central banks will receive fresh inflation data that might impact policy decisions. Australia’s consumer price index (CPI) is anticipated to inch up to 3.5% year-on-year for January, potentially fueling speculation of a rate cut by the Reserve Bank. Meanwhile, Japan’s consumer inflation, excluding fresh food, may slow to 1.8%, falling below the Bank of Japan’s 2% target for the first time since March 2022. However, experts suggest that base effects will likely trigger a resurgence in February, keeping the central bank on track to end the negative rate within the next month or two.
The Reserve Bank of New Zealand is expected to keep its official cash rate at 5.5% following a decrease in inflationary pressure.
Other key statistics include India’s fourth-quarter gross domestic product growth, projected to slow to 6.7% compared to the previous year, and Taiwan’s estimated 5.1% expansion.
Later in the week, Australia will release retail sales and capital expenditure figures, while Thailand will share its trade figures. South Korean exports, influenced by the Lunar New Year holidays, are also expected to be announced.
In China, official data will likely reveal a slight improvement in factory activity as reflected in the purchasing managers’ index (PMI). Attention will shift to whether authorities will introduce measures to support stocks or wait until the National People’s Congress (NPC) meeting the following week.
Europe, Middle East, Africa: Eurozone Inflation and Central Banks
Inflation data from the eurozone will serve as a crucial indicator for global price growth. The overall outcome is estimated to stand at 2.5%, indicating progress toward the 2% goal, albeit insufficient. Additionally, the underlying measure, which excludes volatile elements like energy, is anticipated to weaken to 2.9%. European Central Bank officials will closely analyze these numbers ahead of their March 7 meeting, entering a blackout period on Thursday before making any decisions.
Gross domestic product reports from Switzerland, Sweden, and the Czech Republic are also anticipated to draw attention, while the UK will have a quieter week with mortgage numbers ranking among the highlights.
The wider region will witness several rate decisions:
- Israel’s central bank may consider another cut in borrowing costs in an effort to protect the currency.
- Hungary’s central bank will set the pace of easing, potentially showing the first split among policymakers following a period of unanimity.
- Nigeria’s monetary policy committee is expected to sharply raise the benchmark rate to combat the fastest inflation rate in nearly three decades.
Latin America: Unemployment and Inflation Insights
Four major economies in the region will report unemployment figures for January. Labor markets in Brazil and Mexico are already at historically low levels, while those in Chile and Colombia remain closer to their long-term averages.
In Mexico, market watchers will closely examine Banxico’s quarterly inflation report for any shifts in the central bank’s outlook on inflation and growth, as it has maintained a hold on rates for a year. Chile’s end-of-month data release, consisting of seven separate indicators, may provide insights into potential green shoots in January’s GDP-proxy data.
Brazil, on the other hand, is expected to witness a continued decline in consumer prices and a broad measure of inflation. This should support further easing by the central bank at its March meeting. Inflation in Peru’s capital, Lima, may have slightly increased in February from the previous month, and analysts predict a return to the target range of 1% to 3% in the near future.
In Brazil, output data may reveal the impact of double-digit borrowing costs on the fourth-quarter growth of Latin America’s largest economy.
Overall, these global trends and events, particularly inflation indicators, central bank decisions, and key economic statistics, offer insights into the potential future direction of various regions and industries. Industry players and stakeholders would benefit from closely monitoring these developments and adjusting their strategies accordingly.
