US inflation will help Fed prepare for next hike: Eco Week Ahead

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(Bloomberg) — US inflation data in the coming week may give the Federal Reserve mixed signals ahead of a possible third consecutive jumbo rate hike, with a broad measure of consumer prices likely to fall even as a measure of underlying pressures accelerate.

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The government’s report is expected to show an 8% increase in the total consumer price index from the same month last year, down from 8.5% in July, but still at an all-time high. Excluding energy and food, the CPI is expected to rise 6.1% from 5.9% in the year to July.

Tuesday’s numbers, coupled with recent data showing healthy job growth, a high number of job openings and resilient household spending, will help Fed officials determine whether to go ahead with another 75 basis point rate hike.

In recent speeches, US central bankers emphasized that high inflation will indeed require higher borrowing costs that dampen demand, although at the end of their September 20-21 meeting they held the door open to the magnitude of a hike. Policymakers are now in a blackout period.

“We’ll be in this for as long as it takes to curb inflation,” Fed Vice President Lael Brainard said at a conference on Wednesday. “Monetary policy will have to be restrictive for some time to give confidence that inflation is going down to hit the target.”

Besides the CPI, the US economic data calendar is heavy. Reports include producer prices, industrial production, regional manufacturing surveys and consumer confidence.

Retail sales figures point to the pace of household demand for merchandise against a backdrop of high inflation, higher interest rates and a shift towards spending on services and experiences. Economists predict solid gains in retail purchases excluding gasoline and motor vehicles.

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What Bloomberg Economics Says:

August inflation gauges are likely to be very soft, but that doesn’t change the bottom line: The ‘total’ data that Fed Chair Jerome Powell will track shows little sign of a cooling down in the economy, and maybe even some acceleration. .”

–Anna Wong, Andrew Husby and Eliza Winger, economists. For full analysis, click here

Elsewhere, data is expected to show higher wages and inflation in the UK as the country continues to mourn its queen, and Russia’s central bank may cut interest rates.

Click here for what happened last week and below is our rundown of what’s coming up in the global economy.

Europe, Middle East, Africa

As the UK continues a national period of mourning for the loss of Queen Elizabeth II, the Bank of England postponed its policy meeting and likely aggressive rate hike planned for Thursday for a week.

The delay gives officials more time to weigh in on data that further illustrates the impact of the crisis on the country’s cost of living. That includes wage data on Tuesday, which is projected to show an increase, and inflation on Wednesday, which could rise further above 10%.

Policymakers at the European Central Bank, who have just delivered an unprecedented monetary tightening with a three-quarters point rate hike, will deliver several speeches. Among them, Isabel Schnabel is a member of the board of directors at a research conference organized by the central bank.

Among the potentially noteworthy data is German investor confidence on Tuesday and European industrial production on Wednesday, both of which could indicate how the economy is responding to Russia’s lack of gas.

Further north, Swedish inflation is expected to rise by more than one percentage point to almost 10%. That will inform Riksbank officials, who are considering whether to implement a 75 basis point rate hike next week.

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By contrast, the Russian central bank is expected to cut its rates again on Friday as inflation slows and so does the economy.

Data in Israel on Thursday will show how widespread price increases have spread, a month after inflation unexpectedly spiked to 5.2%. The Bank of Israel now believes there will be no meaningful decline before the end of the year and is expected to continue raising interest rates aggressively.

Ghana data on Wednesday is likely to show inflation has accelerated to more than triple the ceiling of the central bank’s 10% target on currency weakness. The bank will meet next September 20 – and will announce its decision on September 26 – after raising benchmark interest rates by the largest margin since 2002.

Data from Thursday is likely to show Nigerian inflation has accelerated to more than double the central bank’s 9% ceiling, as the naira continues to fall. The increase could result in the rate being increased for a third consecutive meeting on September 27.

Asia

In Japan, the yen’s decline to new 24-year lows is likely to keep investor interest closely focused on senior officials’ comments about possible next steps and whether the possibility of foreign exchange intervention is closer.

Figures released Thursday will show the impact of the weaker yen on the trade balance of the world’s third-largest economy.

In China, the central bank is expected to leave the key rate unchanged on Thursday after last month’s surprise cut. Key economic indicators on Friday will be closely watched to see the extent of damage from Covid lockdowns and power shortages in August.

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Down Under, jobs data will show how the recovery holds, with the Reserve Bank of Australia now more likely to return to smaller rate hikes.

New Zealand’s economy is expected to grow again as it weathers a sustained wave of half-percent rate hikes, and the Reserve Bank of New Zealand will continue with more.

On Thursday, Sri Lanka will report second-quarter GDP data likely to show a further contraction of the crisis-hit economy.

In South Korea, unemployment figures on Friday will show how tight the country’s labor market remains.

Latin America

In Argentina, all signs point to the inflation peak continuing into August, with a year-on-year rate just under 80%. A local advisory group predicts a year-end result that will be just short of 100%.

Central bank surveys of economists in Brazil and Chile may reflect the sharp drop in inflation readings in August in the former and the Banco Central de Chile’s outrageous rate hike on September 6 in the latter.

Data coming out mid-week may show a rebound in core sales in Brazil, while overall numbers point to a year-long slump. Expect Brazil’s GDP proxy data to show the strong second quarter close extended into July.

The week will also provide an update on Latin America’s hottest economy as Colombia releases July reports on retail sales, manufacturing and industrial production. Expect a 55th consecutive monthly trade deficit as imports remain high for nearly 30 years.

Semi-monthly reports from Peru include August unemployment pressures for the country’s capital, Lima, as well as GDP proxy data for July. The economy lost some momentum in the second quarter and faces a challenging second half.

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