US Inflation Is Set to Reassure a Labor Market-Focused Fed

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(Bloomberg) — U.S. inflation will likely moderate at the end of the third quarter, reassuring the Federal Reserve as it shifts more of its policy focus toward protecting the labor market.

The CPI is expected to rise 0.1% in September, its lowest rise in three months. Compared with the previous year, the CPI likely rose 2.3%, the sixth straight slowdown and the weakest since early 2021. The Bureau of Labor Statistics will release its CPI report on Thursday.

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The measure that excludes volatile food and energy categories, which provides a better view of core inflation, is expected to rise 0.2% from the previous month and 3.2% from September 2023.

On the heels of surprisingly strong September job growth reported on Friday, a gradual slowdown in inflation suggests policymakers will opt for a smaller rate cut when they next meet on November 6-7.

Fed Chairman Jerome Powell said forecasts from officials along with the September interest rate decision point to a quarter-point cut in interest rates at the final two meetings of the year.

The CPI and PPI are used to determine the Fed’s preferred measure of inflation, the Personal Consumption Expenditure Price Index, which is scheduled to be released later this month.

What Bloomberg Economics says:

“We expect headline CPI to be weak in September, despite the stronger core reading. Through PCE inflation – the Fed’s preferred price measure – core inflation is likely to grow at a pace consistent with the 2% target. Overall, We don’t think the report will do much to impact the FOMC’s confidence that inflation is on a permanent downward trend.

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—Anna Wong, Stuart Ball, Eliza Wenger, Estelle Au, and Chris J. Collins, economists. For the full analysis, click here

Friday’s producer price report – a measure of the inflationary pressures faced by companies – is also expected to show less severe inflation. On the same day, the University of Michigan released its preliminary consumer confidence index for October. The Fed will also release minutes from the central bank’s September meeting on Wednesday.

Neel Kashkari, Alberto Muslim, Adriana Kugler, Raphael Bostic and Lori Logan are among a group of Fed officials speaking next week.

• For more, read next week’s full US report from Bloomberg Economics

In Canada, officials will release the final jobs report before the Bank of Canada’s next interest rate decision, a crucial input for Governor Tiff Macklem, who expects to see further easing in the labor market. The central bank will also publish surveys of business and consumer expectations for economic growth and inflation.

Elsewhere, central banks from New Zealand to South Korea may cut interest rates, France will unveil its budget, and the European Central Bank will publish minutes of its September monetary policy meeting.

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Click here to find out what happened last week. Below is a summary of what will happen in the global economy.

Asia

It’s a big week for monetary policy in Asia, with two central banks likely to cut interest rates and another one close to doing so.

The Reserve Bank of New Zealand is expected to follow its August pivot to an easing cycle by cutting interest rates by half a percentage point, to 4.75%, when the board meets on Wednesday, as weak payrolls data stokes labor market concerns.

The Bank of Korea is likely to cut its index by a quarter point on Friday after inflation slowed to the slowest pace in more than three years, with the decision hinging on whether conditions in the housing market have slowed enough.

The Reserve Bank of India is expected to keep the repo rate and cash reserve ratio steady, with many economists looking to cut the repo rate by a quarter of a point by the end of the year. Kazakhstan’s central bank is scheduled to decide on Friday whether to resume its monetary easing campaign.

On Tuesday, the Reserve Bank of Australia will release minutes from its September meeting that may shed light on the deliberations that led to its hawkishness, with Andrew Hauser, the RBA’s number two, speaking on the same day.

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Japan is getting wage statistics and household spending data, both important for the new government, before the general election at the end of the month.

Singapore has become the first Asian country to announce third-quarter gross domestic product (GDP) – sometime between Thursday and Monday – as the consensus estimate looks for accelerating year-on-year growth.

Consumer inflation data is due from Thailand and Taiwan, while the Philippines and Taiwan release trade figures.

• For more, read Bloomberg Economics’ full report on next week for Asia

Europe, Middle East, Africa

Germany’s manufacturing woes will be in focus with factory orders released on Monday and industrial production on Tuesday, followed by government economic forecasts on Wednesday.

Officials are preparing to abandon hope of any expansion at all this year, according to people familiar with the matter.

In France, Prime Minister Michel Barnier’s government is scheduled to present the 2025 budget bill on Thursday, at a time when the country is struggling to rein in its deficit. Fitch Ratings has scheduled a potential assessment of the country after the market closes on Friday.

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For the ECB, Wednesday is the last day for officials to speak publicly about monetary policy before the start of a blackout period ahead of the October 17 decision, in which a rate cut appears all but certain.

Chief economist Philip Lane, German Central Bank President Joachim Nagel, and Bank of France Governor François Villeroy de Galhau are scheduled to participate in the conference. A report on the previous meeting will be published on Thursday, providing potential clues to the upcoming ruling.

Meanwhile, in the UK, following comments from Bank of England Governor Andrew Bailey that opened the door to more aggressive easing, Friday’s GDP data will point to the health of the economy in August.

Two Riksbank officials are scheduled to speak after the Riksbank delivered a third interest rate cut in September. Sweden’s monthly growth index will be published on Thursday.

Heading south, authorities in Egypt hope that inflation will resume its slowdown in September after a slight acceleration in the previous month. The latest reading was 26%, slightly below the central bank’s base rate of 27.25%.

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• For more, read next week’s full Bloomberg Economics EMEA report

Three decisions are scheduled from central banks across the region:

• On Tuesday, Kenya’s Monetary Policy Committee is scheduled to cut its key interest rate for the second successive meeting by a quarter of a percentage point, to 12.25%. Inflation is expected to remain below its 5% target in the near term after slowing to a 12-year low in September.

• On Wednesday, Israeli officials are likely to hold interest rates steady again at 4.5%, even as peers begin or continue easing cycles. The war against Hamas in Gaza and escalating conflicts with Hezbollah and Iran are weighing on the shekel, which is near its lowest level in two months. Moody’s and Standard & Poor’s recently downgraded the country’s credit rating.
• The Central Bank of Serbia will make its monthly decision on Thursday, and may continue monetary easing after a quarter-point cut in September.

latin america

By the end of the week, third-quarter consumer price data in all five major Latin American inflation-targeting economies will be available on record.

Lower readings can be expected in Chile, Colombia and Mexico, while the apparent warming of the Brazilian economy and prices is likely to continue in September. All four central banks target an inflation rate of 3%.

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In Brazil, apart from the central bank’s forecast survey published on Monday, the August retail sales report may show a slight deceleration from the set of active readings for 2024.

The minutes of the Banxico meeting on September 26 will be the highlight of the event in Mexico. Policymakers sounded a downbeat tone in their forward guidance post-decision statement after cutting interest rates for the second consecutive time by 25 basis points to 10.5%.

In Peru, the monthly contraction in September and the below-target annual reading of 1.78% are likely to be the green light for the central bank to cut interest rates for a third consecutive time from the current 5.25%.

After reining in frenzied increases in consumer prices, Argentine President Javier Miley’s inflation battle appears to be stalling, with successive monthly records approaching 4%. Economists surveyed by the central bank see a modest slowdown ahead under the current policy mix.

• For more, read the full Latin America Week from Bloomberg Economics

-With assistance from Robert Jameson, Laura Dillon Kane, Piotr Skolimowski, Monique Vanek, and Paul Wallace.

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