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US CPI will help determine the size of the next Fed rate hike: Eco week


(Bloomberg) — Next week’s U.S. inflation data is expected to be in line with diminishing cost pressures and should help determine the size of the Federal Reserve’s next interest rate hike.

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The consumer price index excluding food and energy, known as the core CPI and considered a better baseline than the main gauge, is forecast to grow 0.3% in December.

While slightly higher than November, the monthly gain would be in line with the average for the quarter and well below the 0.5% average seen from January to September amid inflation. highest in a generation.

Thursday’s figures will be among the last that policymakers will see before their January 31-February 31. 1 meeting and decide the rate, the first time with a new rotation of voting members. Economists are predicting a 25 basis point increase in the Fed’s base rate, although officials have indicated that a half point increase is possible.

The Labor Department’s CPI is expected to show core inflation rising 5.7% from a year earlier. That would be the highest December-to-December increase since 1981. Though it is well above the Fed’s target and helps explain the intention of the Fed to keep rates higher for longer periods of time. policy makers, but the annual rate of price increase is moderate.

The report comes almost a week after the latest US jobs report showed wage growth, a key factor in the inflation outlook, cooled in December.

Read more: Fed gets ‘Goldilocks’ report: Wage growth slows, hiring steady

The CPI figures highlight a relatively quiet week of data, including weekly jobless claims and consumer sentiment in January. The Washington-based World Bank will release its biennial economic outlook on Tuesday, and in a summary warns of recession risks.

What Bloomberg Economics says:

Favorable inflation developments are not the result of Fed rate hikes – they are mainly explained by China’s poor exit from Covid-0 and a generally warm winter. However, falling energy prices have helped to sharply reduce short-term inflation expectations and make inflation risks more dual. If this trend continues, that could be the ‘convincing’ evidence the Fed needs to see before pausing or considering a rate cut.

—Anna Wong and Eliza Winger, economists. For full analysis, click here

Elsewhere, data expected to show faster price growth in Japan and China, plus an assessment of how German economic growth cools in 2022, should draw attention. of investors.

Click here for what happened last week, and below is our roundup of what’s to come in the global economy.

Asia

South Korea will kick off Asia’s central bank decisions this year, with the Bank of Korea on Friday set to prepare for the final rate hike in the current tightening cycle as concerns mount. concerns about increased growth.

Governor Rhee Chang-yong is focusing on inflation while becoming increasingly wary of the impact of rising borrowing costs on the economy’s momentum.

In Japan, Tokyo’s CPI figures on Tuesday could show inflation rising further as investors keep a close eye on the Bank of Japan following the surprise monetary policy move in December.

Down Under, Australia is set to report retail sales and CPI figures, with inflation expected to continue to accelerate.

China’s inflation data on Thursday is expected to show PPI remains close to deflation in December, while consumer inflation picks up slightly.

The People’s Bank of China will release monthly credit data, which will be closely watched to gauge whether monetary stimulus is flowing through the economy.

India will release inflation data, which will likely show prices cooling for the third consecutive month.

Europe, Middle East, Africa

The first major global currency conference of 2023, taking place in Stockholm on Tuesday, focuses on central bank independence and is chaired by newly inaugurated Riksbank Governor Erik Thedeen.

Fed Director Jerome Powell and colleagues from the United Kingdom, Canada, the Netherlands and Spain are expected to speak. European Central Bank Executive Board member Isabel Schnabel is also expected to appear.

Friday will have some data releases. Statisticians in Germany will publish estimates of economic growth in 2022. Usually, this is the first such assessment from the Group of 7 industrialized nations, the report can hint at performance in fourth quarter.

These numbers are likely to signal the post-pandemic recovery of Europe’s largest economy that was stifled by the energy crisis following Russia’s invasion of Ukraine. Officials say Germany is currently in recession.

In the broader euro area, industrial output for November due on the same date could partially recover from the previous month’s decline. ECB statistics showing whether banks will repay further long-term loans will also be released.

UK growth data for November, also on Friday, is expected by economists to show a decline from October. The report could help confirm the Bank of England’s concerns that the economy there is also in recession.

Days after eurozone inflation slowed to single digits in a release that still showed strong underlying pressures, consumer price data from Norway, Sweden, Denmark and the Czech Republic the week will end. Russia and Ukraine will publish comparable statistics.

Among the central bank’s decisions, Romanian officials are expected to raise their key rate further on Tuesday, while their Serbian counterparts could do the same two days later. Kazakhstan’s currency decision is on Friday.

Latin America

Mexico on Monday posted its monthly and biweekly consumer price reports for the end of 2022, and most analysts forecast a slight rebound of up to 8%. Core indexes above 8% and US inflation cooling relatively faster could pressure Banxico to extend its record rally.

Brazil on Tuesday posted December consumer price data, with analysts expecting a gain of about 5.6%, about 650 basis points below the 2022 high. Unemployment falls, inflation falls. A slowdown and government cash transfers could support November retail sales there.

Many economists have downgraded their consumer price forecasts in Argentina for 2022, with consensus forming by about 95% for annual results in December.

Hours before the Peruvian central bank’s interest rate meeting last month, the country’s president tried to dissolve parliament and was subsequently impeached and arrested. Political volatility and high inflation make the 18th interest rate hike in a row more likely.

Back in Brazil, Latin America’s largest economy performed better for much of 2022 but there are plenty of signs of slowing momentum. Preliminary estimates suggest a second straight decline in November’s GDP reading released on Friday.

–With support from Nasreen Seria, Michael Winfrey and Robert Jameson.

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