(Bloomberg) — The Federal Reserve’s favorite inflation gauge is on track to post its slowest monthly increase since late last year, giving the central bank a springboard to start cutting interest rates as early as September.
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Economists see the personal consumption expenditures price index unchanged in May and the core measure, which excludes food and energy, rising just 0.1%, according to median forecasts in a Bloomberg survey of economists.
The report, due to be released on Friday, is expected to show an annual rise of 2.6% for both the headline and core indexes. The expected increase in core, a more accurate indicator of underlying inflation, would remain at its smallest since March 2021.
Since their last meeting, Fed officials have said they are encouraged by the calming of other inflation measures, including the consumer price index, but that they need to see such progress over several months before lowering interest rates.
Meanwhile, the labor market, the other part of the Fed’s dual mandate, is still performing well, even if it has slowed. A healthy jobs market gives policymakers some flexibility in terms of when to cut interest rates.
The latest inflation numbers are accompanied by consumer spending figures, which tell us more about spending on services, while recent retail sales data suggests demand for goods is weakening. Median forecasts predict nominal consumer spending and incomes will accelerate slightly.
Bloomberg Economics:
“We believe that the slowdown in inflation alone will not be enough to convince officials that inflation is steadily declining toward the Fed’s 2% target by the time of the July FOMC meeting.”
—Estelle Wu, Stuart Paul and Eliza Winger, economists. For a more detailed analysis, click here.
Other data due next week include consumer confidence for June and a report on contract signings for new and existing homes in May. The government is also due to release its third forecast for first-quarter economic growth, as well as durable goods orders for May.
In Canada, central bank governor Tiff Macklem is due to speak in Winnipeg, May consumer price data is expected to show core inflation easing for the fifth consecutive month, and April’s gross domestic product (GDP) release and preliminary May figures will also provide key insights.
Elsewhere, inflation figures in the three largest euro zone countries may also please authorities, while central banks in Sweden and Mexico are likely to keep interest rates on hold.
Click here to read about last week’s events, and below for our outlook for the global economy.
Asia
Asia kicks off this month with the release of minutes from the Bank of Japan’s policy meeting.
Interest in the document has grown after officials pledged to reduce bond purchases but also said investors should wait until late July to learn more about the size of the cuts. Hints could emerge as soon as Monday.
Meanwhile, Reserve Bank of Australia Deputy Governor Christopher Kent speaks on Wednesday, followed by Andrew Hauser the next day. Attention is focused on whether there are any new signs of a more hawkish stance after the governors said they considered raising interest rates at their meetings this month.
They spoke as data released on Wednesday is expected to show Australia’s inflation rate rose slightly in May.
In Japan, the release of the Tokyo Consumer Price Index for June will provide a leading indicator of domestic inflation trends. Bloomberg Economics expects inflation in the capital to rise to 2.1% due to higher utility prices as the government cuts energy subsidies.
Other countries that have released pricing updates include Malaysia, Singapore and Uzbekistan.
Other data includes China’s industrial gains due on Thursday that could reflect benefits from government efforts to upgrade capacity, while trade figures are due to be released this week in New Zealand, Vietnam, Sri Lanka, Thailand and Hong Kong.
South Korea released two indicators of domestic demand: retail sales and consumer confidence.
Meanwhile, China and the European Union have agreed to begin talks on a plan to impose tariffs on electric vehicles imported from China.
Europe, Middle East, and Africa
The Riksbank’s decision, due on Thursday, will be the center of attention. Economists are widely expecting Swedish authorities to pause their easing cycle after their first rate cut last month, a precursor to a similar move by the European Central Bank, which is expected to keep rates unchanged in July.
Policy makers are growing more confident that Sweden is getting inflation under control and could approve two more interest rate cuts this year to shore up an economy that EU officials predict will have one of the weakest growth rates in the bloc.
Below is a summary of decisions by other central banks in the region.
Zimbabwe is expected to cut interest rates on Wednesday for the first time since it introduced a new currency, ZiG, in April to combat deflation.
Czech policymakers may cut borrowing costs by 25 or 50 basis points on Thursday but will not say inflation has been subdued.
On the same day, Turkey’s central bank is expected to keep interest rates steady at 50 percent as it waits for consumer price inflation to slow from last month’s 75 percent. Officials are confident borrowing costs will start to fall significantly in the second half of the year.
In the euro zone, inflation data from three of the four largest economies is due to be released this weekend, with France and Spain expected to report slowing price growth and Italy showing price growth remains weak.
The figures may give officials encouragement after inflation accelerated more than expected across the region last month, leading to a slowdown in economic growth.The ECB’s consumer price expectations survey is also due to be released on Friday.
Other reports include Germany’s Ifo business confidence index due for release on Monday, which is expected to show a further modest improvement in sentiment among companies in the region’s largest economy.
Policymakers scheduled to speak include François Villeroy de Galhau, governor of the Bank of France, whose economy is under intense investor scrutiny ahead of upcoming parliamentary elections, as well as European Central Bank chief economist Philip Lane and the governors of the German and Italian central banks.
“We could be threatened by a new price shock,” board member Isabel Schnabel said on Sunday. “That’s why we are cautious, we are not pre-committing ourselves to a fixed-rate path and we continue to rely on data.”
Meanwhile, in the UK, Bank of England officials are likely to continue to avoid public comments ahead of a general election on July 4, although a June 20 decision brings them closer to a possible interest rate cut in August. The country’s data includes the release of final first-quarter GDP figures on Friday, including current account figures.
Looking to Africa, Zambia’s growth figures for the first three months of 2024, due on Thursday, may reveal some of the impact of a devastating drought that is expected to slow growth to 2.5% this year from 5.2% in 2023.
Kenya’s June inflation figures are due to be released the next day, giving further insight into the impact of the floods and heavy rains on food prices in the country.
latin america
The Bank of Mexico will release updated consumer price index data on Monday ahead of its monetary policy decision on Thursday, but the data is unlikely to provide any stimulus to the bank. With inflation rising again and running even higher than its target, the bank is almost certain to keep its policy rate unchanged at 11% for its second meeting.
All eyes are on Brazil’s central bank as it publishes minutes from its June 18-19 monetary policy meeting on Tuesday and its quarterly inflation report on Thursday. Between the two meetings is the mid-month release of the benchmark consumer price index.
While keeping interest rates unchanged at 10.5% was not a surprise, the relatively calm tone of the post-policy statement raised some eyebrows.
Argentina’s economy appears to have fallen into a technical recession at the start of 2024, with a sharp decline expected quarter-on-quarter and year-on-year. Analysts surveyed by Bloomberg expect a 5.4% drop from a year ago, the biggest since the pandemic began.
While many of the region’s other main inflation-targeting central banks have stayed on the sidelines or taken a more hawkish stance, Colombia’s central bank is expected to cut its benchmark interest rate by half a percentage point to 11.25%, down 200 basis points from last year’s peak of 13.25%, and set to reach 8.5% by the end of 2024.
–With assistance from Brian Fowler, Robert Jameson, Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek, and Paul Wallace.
(Update on Schnabel in the EMEA section)
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