Fed Rate Puzzle Finally Gets Inflation, Retail Pieces: Eco Week

(Bloomberg) — Reports this week expected to show still-warm U.S. inflation and a pullback in retail sales round out the last key economic data markers for Federal Reserve policymakers ahead of their upcoming meeting.

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The core consumer price index, which excludes food and energy and provides a better sense of underlying inflation, is expected to rise 0.4% for a third straight month in February. The median estimate of economists surveyed by Bloomberg also calls for a 5.5% increase from a year ago.

Tuesday’s inflation data follows fresh numbers showing robust employment growth in February, but also hinting at a further softening in wage increases that could help dampen price pressures in the coming months.

While inflation remains high as Fed policymakers consider increasing the pace of rate hikes, officials will also consider the impact of their year-long tightening campaign on the financial system.

The collapse of SVB Financial, a bank holding company, has shaken markets since Thursday by raising concerns that higher interest rates are putting small lenders at risk.

Fed officials, who next meet March 21-22, will also take a fresh look at the extent of consumer appetite for merchandise. After a rise in January that underscored robust demand, Wednesday’s retail sales report for February is expected to show shoppers pulled back.

Other US data in the coming week include reports on producer prices, housing starts and industrial production for February, as well as the first reading on consumer sentiment for March.

What Bloomberg Economics Says:

“With inflation so far above target and spending showing such resilience, Fed Chair Jerome Powell appears to be signaling a preference for taking strong inflation and activity data at face value. To be sure, not all evidence points in the same direction direction: There are some signs that the labor market is softening and wages are cooling. Still, these are nuances, and a 50 basis point hike would signal that the Fed thinks it’s not time for nuance.”

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

Elsewhere, the People’s Bank of China may get a new governor, the European Central Bank is likely to deliver a half-point rate hike, Britain will unveil budget plans and the OECD will release new forecasts for its 38 members and other major economies.

Click here for what happened last week, and below is our wrap of what else is coming in the global economy.


China is expected to name a new central bank chief on Sunday, along with several key economic officials to help guide the nation’s recovery from three years of pandemic turmoil.

On Wednesday, new activity data will show the extent of the consumer and business recovery since reopening, with early signs of a notable increase in household spending.

Australia’s central bank governor Philip Lowe will keep an eye on business and consumer sentiment figures on Tuesday and employment figures on Thursday as he assesses the latest data following this month’s interest rate hike. Investors are likely to jump on further signs of weakness in the economy that could bring the RBA closer to pausing its interest rate hikes.

South Korea also releases jobs numbers on Wednesday with the labor market still relatively robust despite higher rates and falling external demand.

New Zealand’s GDP numbers are expected to show a sharp slowdown in growth with worse expected this quarter after the worst cyclone damage in decades.

Japan’s largest union will release preliminary data on this year’s spring wage negotiations on Friday. The figures will give the Bank of Japan a handle on the development of the wage trend and whether it is strong enough to support inflation and justify a cut in stimulus.

Indonesia sets rates on Thursday.

Europe, Middle East, Africa

The ECB’s interest rate decision will be a central focus in the region. A rise of half a point is almost certain, although investors will be watching more for signs of its intentions for May and beyond, guided by new quarterly forecasts.

A rise in core inflation to the fastest in eurozone history is a point of contention as officials debate whether that target or a reduction in overall price growth should be the primary focus of policy.

The governing council also argues about tactics. Its stated approach to setting prices “meeting-by-meeting” is jarring, with comments from some hawks suggesting rises could continue into the second half of the year. The dovish Bank of Italy chief, Ignazio Visco, spoke out last week to complain about such guidance well into the future.

For now, investors are starting to price in the prospect of the deposit rate hitting 4%, requiring another 150 basis point hikes from current levels. President Christine Lagarde’s remarks at the press conference following the decision will be scrutinized for clues about this prospect.

Read more: ECB sees interest rate to 3.75% top as bond exit for Quicken

In the wake of the decision, Denmark can also adjust the loan costs. The central bank in Copenhagen typically changes its course in line with its counterpart in Frankfurt.

The week will be less eventful for eurozone data, with industrial production on Wednesday among the highlights.

Britain will have its first conventional budget announcement on Wednesday since Liz Truss’s disastrous 49-day tenure as prime minister last year.

Since Chancellor of the Exchequer Jeremy Hunt took office towards the end of his premiership, the country’s financial market situation has stabilized and the economy has so far moved past a long-announced recession. But an ongoing cost-of-living shock, violent strikes and labor shortages remain persistent concerns.

With limited room for giveaways, he may choose to continue energy subsidies for households and stick with a fuel tax freeze, with measures to support childcare and fund defense spending also among possible outcomes.

Meanwhile, data on Tuesday will illustrate the backdrop for the Bank of England, with earnings and unemployment likely to hint at inflationary pressures in the economy.

Elsewhere in Europe, Swedish inflation will reveal the challenge facing the Riksbank, which is struggling to bring consumer prices under control even as the economy endures what could turn out to be the worst downturn in the EU this year. Romania and Serbia will also publish corresponding reports.

Looking south, Ghanaian inflation may have fallen in February for the second consecutive month, but remained more than five times the 10% ceiling of the central bank’s target range. It comes after a purchasing managers’ index last month signaled the first improvement for the private sector in more than a year as price pressure eased.

Turkish balance of payments data is likely to show one of the biggest monthly deficits on record due to energy and gold imports in January, while budget figures on Wednesday could reflect the first impact of February’s devastating earthquake on central government finances.

Russia’s central bank is expected to hold an interest rate-setting meeting on Friday. Officials have taken a more hawkish tone as inflation risks rise.

Latin America

A series of January data from Colombia is likely to show that the once-hot economy has slowed dramatically. Manufacturing, industrial output, retail sales and overall economic activity are declining and even negative amid the burden of double-digit borrowing costs and inflation.

Mexico’s industrial production and manufacturing results for January may show cooling from December, with early estimates suggesting the slowest readings since 2021.

An easy week in Brazil offers the central bank’s survey of economists’ expectations as well as the unemployment figures for January. With unemployment at a seven-year low of 7.9%, there are signs of a weakening labor market. Formal January job creation figures released last week were stronger than expected, led by services and construction.

Lima unemployment results for February released this week may increase after January’s big jump to 8% from 7.1% a month earlier.

Peru’s GDP proxy data from January is likely to reflect pressure from the nationwide protests and roadblocks over the impeachment and arrest of former President Pedro Castillo.

And finally, in what has long been inevitable, Argentina’s February consumer price report is likely to show annual inflation pushed above 100%, easily the fastest pace among Group-of-20 economies.

–With assistance from Andrew Atkinson, Andrea Dudik, Robert Jameson, Reed Landberg, Andrew Langley, Malcolm Scott and Sylvia Westall.

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