(Bloomberg) — The Federal Reserve’s favored inflation gauges are poised to show the smallest monthly progress since late last year — a starting point for officials to start cutting interest rates, perhaps as soon as September.
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Economists expect no change in the PCE price index for May and a slight 0.1% increase in the core measure that excludes food and energy, based on the median forecast in a Bloomberg survey of economists.
The report, due Friday, is also expected to show 2.6% annual progress in both broad and fundamental metrics. The expected increase in the core measure, which paints a better picture of core inflation, would still be the smallest since March 2021.
Since their last meeting, Fed officials have said that while they are encouraged by the decline in other inflation data — including the CPI — they need to see months of such progress before cutting interest rates.
On the other hand, the labor market – the other part of the Fed’s dual mandate – is still advancing, albeit at a slower pace. A healthy labor market provides policymakers with some flexibility on the timing of interest rate cuts.
The latest inflation figures will be accompanied by personal spending figures that will report on services expenditures after recent retail sales data showed a decline in desire for goods. The average forecast calls for a slight acceleration in nominal personal consumption as well as income.
What Bloomberg Economics says:
“We do not believe that the slowdown in inflation will be enough to convince officials by the FOMC meeting in July that inflation is on a steady path to the Fed’s 2% target.”
—Estelle O., Stuart Ball, and Elisa Wenger, economists. For the full analysis, click here
Other data next week will include June consumer confidence readings and reports of contracts being signed in May for new and previously owned homes. In addition to the third estimate of economic growth in the first quarter, the government will release durable goods orders numbers for May.
In Canada, Central Bank Governor Tiff Macklem is scheduled to speak in Winnipeg, and May consumer price data is expected to show core inflation fell for a fifth month, and the April GDP release along with the preliminary estimate for May will also provide crucial insight.
Elsewhere, inflation figures in three major euro zone economies may also please officials, while central banks in Sweden and Mexico are likely to keep interest rates unchanged.
Click here to find out what happened last week. Below is a summary of what will happen in the global economy.
Asia
Asia begins releasing minutes from the Bank of Japan’s board meeting this month.
The document is receiving increased attention after the authorities pledged to reduce bond purchases, while also saying that investors will have to wait until late July before getting details about the size of the cuts. Hints may emerge on Monday.
Elsewhere, RBA Assistant Governor Christopher Kent speaks on Wednesday and Deputy Governor Andrew Howser the following day, with an eye on any new hints of hawkishness after the governor said the board considered a rate hike at its meeting this month.
They speak after data on Wednesday is expected to show Australian inflation rose in May.
Japan will see a leading indicator of national inflation trends with the release of the Tokyo measure of the consumer price index for June. Bloomberg Economics expects inflation in the capital to rise to 2.1%, supported by an increase in utility prices after the government reduced energy subsidies.
Other countries publishing price updates include Malaysia, Singapore and Uzbekistan.
In other data, China’s industrial profits on Thursday may reflect the benefits of an official push for equipment modernization, and trade statistics are due during the week in New Zealand, Vietnam, Sri Lanka, Thailand and Hong Kong.
South Korea gets two indicators indicating domestic demand through retail sales and consumer confidence.
Meanwhile, China and the European Union agreed to start talks on the bloc’s plans to impose tariffs on electric cars imported from the Asian country.
Europe, Middle East, Africa
The Riksbank’s decision on Thursday will be a landmark event, with economists widely expecting Swedish officials to pause the easing cycle after last month’s initial interest rate cut – foreshadowing a similar move the ECB is expected to remain on hold in July.
As policymakers grow more confident that Sweden is closer to taming inflation, they may endorse a course of two additional cuts this year to support an economy that EU officials expect will record one of the weakest expansions in the entire bloc.
Here’s a quick look at other central bank decisions across the region:
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Zimbabwe is expected on Wednesday to cut its key interest rate for the first time since it introduced its new currency, the zig, in April to combat deflation.
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Czech policymakers may cut borrowing costs by 25 or 50 basis points on Thursday, while refraining from saying that inflation has been overcome.
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On the same day, the Turkish Central Bank is likely to keep interest rates at 50% while waiting for consumer price growth to slow from last month’s figure of 75%. Officials are confident that borrowing costs will begin to fall significantly in the second half.
In the Eurozone, inflation data in three of the four largest economies will arrive at the end of the week. Reports are expected to show a slowdown in France and Spain, with price growth remaining weak in Italy.
These numbers may be encouraging to officials after the setback witnessed last month, when inflation accelerated more than expected across the region. The European Central Bank’s survey of consumer price expectations will also be released on Friday.
Other reports include Germany’s Ifo business confidence index on Monday, which is expected to show a further gradual improvement in sentiment among businesses in the region’s largest economy.
Among the policymakers scheduled to speak is Bank of France Governor François Villeroy de Galhau, whose economy is under intense scrutiny by investors ahead of the upcoming legislative elections. European Central Bank chief economist Philip Lane and the heads of the German and Italian central banks are also scheduled to appear.
“We may be threatened by new price shocks,” Executive Board member Isabel Schnabel said on Sunday. “That is why we are on alert and have not previously committed to a fixed price path, but are data-driven.”
Meanwhile, in the UK, Bank of England officials – whose June 20 decision moved closer to a possible August interest rate cut – will continue to avoid public communications ahead of the July 4 general election. Data there includes the final release of first-quarter GDP on Friday, including current account numbers.
Turning to Africa, Zambia’s growth statistics for the first three months of 2024, due on Thursday, may reveal some of the impact of the devastating drought. The drought is expected to reduce expansion to 2.5% this year from 5.2% in 2023.
The next day, Kenya’s June inflation will give a further indication of the impact of floods and heavy rains on food prices there.
latin america
Mexico’s central bank will get its latest consumer price reading on Monday before a monetary policy decision on Thursday, and the data will likely leave the Bank of Mexico completely unaffected. With inflation rates rising again and deviating further above the target, Banxico is certain to remain steady at 11% for the second meeting.
The central bank is the focus in Brazil as it will release the minutes of its June 18-19 monetary policy meeting on Tuesday as well as its quarterly inflation report on Thursday. Sandwiched between the two is the mid-month reading of the benchmark Consumer Price Index.
Maintaining the key interest rate at 10.5% was not surprising, although the relatively moderate tone of the post-decision statement raised some eyebrows.
Argentina’s economy is likely to have fallen into a technical recession at the beginning of 2024, with deep declines on a quarterly and year-on-year basis. Analysts polled by Bloomberg see a 5.4% year-over-year decline, the largest decline since the pandemic.
While many of the region’s other major inflation targets for central banks are either sidelined or increasingly hawkish, Colombia’s BanRep is expected to cut by half a point to 11.25% – 200 basis points below last year’s peak of 13.25% – which is On its way to completion. 2024 by 8.5%.
– With assistance from Brian Fowler, Robert Jameson, Laura Dillon Kane, Piotr Skolimowski, Monique Vanek, and Paul Wallace.
(Updates with Schnabel in EMEA section)
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