Stubborn US Inflation Set to Reinforce Fed’s Go-Slow Approach

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(Bloomberg) — Next week’s U.S. inflation numbers showing stubborn price pressures will reinforce the Federal Reserve’s cautionary stance toward future interest rate cuts.

The PCE price index, excluding food and energy — the Fed’s preferred measure of core inflation — is expected to rise 0.3% in October from September, and 2.8% from a year earlier, in what would be the biggest advance since April. .

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The report is also expected to reveal resilient household spending and steady income growth at the start of the fourth quarter. Consumer spending, not adjusted for price changes, is expected to rise 0.4% after rising 0.5% in the previous month. Personal income is expected to rise 0.3% for the second month, supported by healthy but moderate job growth.

While Fed policymakers will receive another set of inflation data — consumer and producer price indices for November — before their meeting on December 17-18, they will not see another measure of personal consumption expenditures prices as they debate whether to cut interest rates.

What Bloomberg Economics says:

“Many Fed officials discussing U.S. economic conditions recently echoed a theme recently advanced by Chairman Jerome Powell — that a December rate cut is not a done deal and the central bank can slow the pace of easing as risks to the economy decline.”

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

The income and spending report was the biggest blow to investors during Wednesday’s data barrage before the Thanksgiving holiday. The government that day will also release revised third-quarter GDP, durable goods orders, unemployment claims and merchandise trade deficit numbers.

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On Tuesday, investors will analyze the minutes of the Fed’s early November meeting for hints about policymakers’ appetite for a third straight rate cut next month. As of Friday, market participants set slightly better odds for another quarter-point cut.

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

Heading north, Canada’s third-quarter GDP on Friday may help officials decide between a second 50 basis point rate cut or a more cautious 25 basis point move in December. Output data pointed to 1% growth, but economists expect spending-based figures to be closer to the central bank’s estimate of 1.5% annual expansion, supporting the case for more gradual cuts.

Elsewhere, Chinese survey numbers, a potential rise in inflation in the euro zone, and monetary decisions – including a possible big cut in interest rates in New Zealand – are among the highlights.

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

Asia

The health of the Chinese economy will remain in the spotlight, with purchasing managers’ indexes released at the end of the week.

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Policymakers and economists will be looking for more signs that Beijing’s latest stimulus is gaining early momentum. Last month, purchasing managers’ indexes for factories and services sectors showed resilient or expanding activity for the first time since April.

New Zealand’s central bank may consider a significant interest rate cut on Wednesday. The cut is likely to be half a percentage point rather than anything larger as the Reserve Bank looks to balance caution about persistent inflation with the need to restart the stalled economy.

The Bank of Korea is expected to remain steady on Thursday as it monitors the impact of its shift toward lower interest rates in October.

Reserve Bank of Australia chair Michelle Bullock’s views on the policy outlook will be under the microscope when she speaks at an event the day after the latest monthly inflation figures are released.

Elsewhere, interest rate decisions are also scheduled to be made in Sri Lanka and Kazakhstan.

New Zealand, Hong Kong and Thailand will release trade figures next week, Singapore will release inflation figures, and Japan will report on factory output, retail sales and the latest price growth data from Tokyo.

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

Europe, Middle East, Africa

Inflation will take center stage in the euro zone, with data releases starting on Thursday before a report for the region as a whole is released the following day.

Forecasters expect price growth in the four major economies to accelerate. Eurozone inflation likely accelerated to 2.3% in November, the fastest reading in four months.

Investors will also await the European Central Bank’s survey of consumer price expectations on Friday. Policymakers are scheduled to appear several times throughout the week, including Chief Economist Philip Lane.

Officials at the European Central Bank have become increasingly optimistic about the inflation outlook and are likely to view the expected reacceleration as merely a short-term blip.

Monday’s German Ifo business expectations index – the first since Donald Trump’s re-election raised the prospect of new tariffs – will also be a highlight.

In the UK, the Bank of England is likely to draw attention. Governor Andrew Bailey will address business leaders on Monday, and the latest financial stability report will be published at the end of the week.

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Turning to Sweden, data released on Friday may show that the economy has succumbed to recession in the third quarter. Before that, two Riksbank officials are scheduled to speak.

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

Several monetary decisions are scheduled to be made in the wider region:

• The Israeli Central Bank on Monday is likely to keep its key interest rate at 4.5% as the wars in Gaza and Lebanon cause price pressures and slow the economy.
• On Tuesday, Nigerian officials may raise borrowing costs to cool price growth fueled by gasoline, a weak currency and floods. Governor Olayemi Cardoso said the central bank wants a positive inflation-adjusted interest rate to attract investment and support the naira. The difference between inflation and the index is now about 660 basis points.

• Lesotho, whose currency is pegged to the rand and has seen slow price growth, is expected to follow South Africa’s lead and cut by a quarter of a percentage point.
• In Mozambique on Wednesday, policymakers may keep interest rates at 13.5%, due to concerns about the impact of electoral turmoil on inflation.
• A day later, Gambian officials, encouraged by weak price growth, may cut benchmark borrowing costs, currently set at 17%.
• On Friday, Ghana is expected to leave its benchmark at 27% due to concerns that the end-of-year inflation target of 18% will not be met.

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latin america

In Mexico, we are eagerly awaiting the central bank’s quarterly inflation report and the minutes of Banxico’s November 14 decision to deliver the third consecutive interest rate cut to 10.25%.

Analysts trimmed their GDP forecasts for 2024 and 2025 while Banxico significantly raised its fourth-quarter inflation forecast to 4.7% from 4.3% at its November meeting.

Governor Victoria Rodriguez indicated on November 19 that given the progress made in slowing consumer price increases, more easing lies ahead.

Jobs data for October is also available in three of the region’s major economies. Brazil’s national unemployment rates may surpass the previous low of 6.3% to hit a new high. In Colombia, early consensus is for urban unemployment to fall to 8.9%, well below the average in this series. Chile’s current unemployment level of 8.7% indicates stagnation in the labor market and economy.

In addition to the jobs report, Chile also publishes October retail sales, business activity, industrial production, manufacturing production, and total copper production.

Budget numbers and the Brazilian Central Bank’s weekly reading of market expectations round out the mid-month inflation report, which is likely to show consumer prices rising again, either above target or above the tolerance band.

Local economists raised their year-end forecasts in 26 of the last 28 weekly studies conducted by the central bank.

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

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

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