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Fed’s Favorite Underlying Inflation Gauge Is Seen Cooling

(Bloomberg) — The Federal Reserve’s primary inflation gauge is on track to show a slight relief from stubborn price pressures, corroborating central bankers’ caution about the timing of interest rate cuts.

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Economists expect the price index for personal consumption expenditures excluding food and energy – due Friday – to rise 0.2% in April. It would be the smallest advance so far this year for the measure, which provides a better look at underlying inflation.

The overall PCE price index likely climbed 0.3% for a third month, according to the median projection in a Bloomberg survey. This year’s increases contrast with relatively flat numbers in the final three months of 2023, underscoring the Fed’s uneven progress in its fight against inflation.

Fed Chairman Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path toward their 2% target before cutting the benchmark interest rate, which is at its highest level in two decades since July.

The PCE price measure is expected to rise 2.7% on an annual basis, while the core measure is expected to rise to 2.8%, both matching the previous month’s levels.

Earlier this month, officials coalesced around a desire to keep interest rates higher for longer and “many” questioned whether the policy was restrictive enough to bring inflation back to its target, according to the lawsuit -minutes of their last meeting.

Read more: Minutes show officials rally around higher, longer rates

The latest inflation figures will be accompanied by personal spending and income figures. Even though demand grew at a healthy pace in the first quarter, the data will provide insight into spending on services following the previously reported stagnation in April retail sales.

What Bloomberg Economics says:

“The report will likely provide encouraging signs that the disinflation process has not completely stalled. With income growth slowing in a slowing labor market, consumers are gradually cracking down, which should provide a continued disinflationary boost through the rest of the year. However, with catch-up price pressures still underway, inflation will likely slow only very gradually this year.

—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For a full analysis, click here

Other data this week includes revised first-quarter gross domestic product on Thursday. Economists expect growth to slow compared to the government’s initial estimate. The Fed will publish its Beige Book on Wednesday summarizing the economic situation in the country.

Among the US central bankers who will speak during the shortened holiday week are John Williams, Lisa Cook, Neel Kashkari and Lorie Logan.

Looking north, Canada will release gross domestic product data for the first quarter. Slowing monthly momentum in March and weak domestic demand would likely leave a June rate cut in play for the central bank.

Elsewhere, a likely pick-up in inflation in the Eurozone, Chinese industrial data and PMI figures, as well as price reports from Brazil will be among the highlights.

Click here to find out what happened last week and below you’ll find our summary of what’s happening in the global economy.

Asia

The Chinese manufacturing sector will be in the spotlight next week. Industrial data on Monday will show whether profits rebounded in April after a sharp decline in March that dragged the pace of gains for the first three months to 4.3%.

Persistent producer price deflation and weak domestic demand could keep profitability under pressure. China gets official manufacturing PMI data on Friday, with focus on whether the indicator remains above the 50 threshold that separates contraction from expansion for a third month in May .

Also on Friday, growth in Japanese industrial production is expected to slow while retail sales hold steady in April.

Consumer inflation in Tokyo may pick up a bit in May, pointing to gains for the national figures.

Meanwhile, China asked South Korea to maintain stable supply chains as the countries began their first tripartite summit with Japan since 2019.

Consumer price growth in Australia is expected to slow to 3.3%, still high enough to keep the Reserve Bank of Australia on pause.

Vietnam also releases CPI data, as well as industrial production, retail sales and trade during the week.

Within the central bank, Kazakhstan sets its key reference rate on Friday.

Europe, Middle East, Africa

In the euro zone, inflation probably accelerated in May to 2.5%, according to economists’ forecasts. The underlying indicator is expected to have stopped weakening for the first time since July, remaining at 2.7%.

In line with broader euro zone data, national releases starting with Germany’s on Wednesday are expected to have gone sour in three of the region’s four biggest economies. Only Italy is experiencing slower price growth.

Such results hamper progress towards the ECB’s 2% target, but continued signals from officials for a quarter-point rate cut on June 6 make it unlikely that a month’s worth of data will derail. However, some policymakers oppose any rush toward further easing.

“It is increasingly likely that in 13 days we will see the first rate cut,” Bundesbank President Joachim Nagel, a political hawk, said on Friday. “If there is a rate cut in June, we will have to wait, and I think we will have to wait maybe until September.”

Other reports in the eurozone include the Ifo German business confidence index on Monday, the ECB’s survey of inflation expectations on Tuesday and economic confidence on Thursday.

ECB officials expected to speak next week include chief economist Philip Lane and the governors of the Netherlands, France and Italy. A pre-decision blackout period comes into effect on Thursday.

The Bank of England has already remained silent, canceling all speeches and public statements by policymakers during the campaign ahead of the UK’s July 4 general election.

Among other European central banks, a financial stability report from Sweden’s Riksbank released Wednesday and a speech in Seoul by Swiss National Bank President Thomas Jordan will be among the highlights.

Several monetary decisions are planned in the wider region:

  • Israel’s central bank is expected to keep its benchmark rate at 4.5% on Monday, largely to contain war-related inflationary pressures and support the shekel. Governor Amir Yaron is wary of easing monetary policy and further widening the gap between borrowing costs in Israel and the United States.

  • Ghana’s monetary authority is set to leave its policy rate at 29% on Monday to beat stubborn inflation and support its ailing currency.

  • Mozambique’s policymakers are set to cut borrowing costs on Wednesday, with consumer price growth expected to remain below 10% for the rest of the year.

  • And on Thursday – a day after elections in which the ruling African National Congress risks losing its majority – South African monetary policymakers are expected to keep their benchmark rate at 8.25%, with inflation yet to return to midpoint of 4.5% of their target range.

Latin America

Brazil will release the mid-month reading of its core consumer price index next week as well as the May reading of its broadest measure of inflation.

The combination of a tight labor market in Brazil and a weaker currency likely limits the scope for further disinflation from current levels, with inflation already near year-end consensus forecasts.

The IPCA-15 price index fell below 4% last month after jumping more than 5% in September, just two months after reaching 3.19%, below the bank’s target central for 2023.

Also in Brazil, the central bank publishes its weekly survey of economists on Monday, whose inflation expectations and interest rate forecasts are on the rise again, as are national unemployment, total outstanding loans and budget balances.

Chile releases six separate indicators for April, with the highlights being unemployment, retail sales, industrial production and copper production.

Mexico’s light schedule will be dominated by the central bank’s release of its quarterly inflation report, followed by a news conference hosted by Governor Victoria Rodriguez.

Banxico revised its inflation forecast upwards earlier this month through the third quarter of 2025, while Wednesday’s report will reveal the bank’s revised GDP forecast.

On Thursday, Mexican labor market data for April will be due. The first consensus forecasts an increase in the unemployment rate from the record low of 2.28% recorded in March.

–With assistance from Robert Jameson, Piotr Skolimowski, Monique Vanek and Laura Dhillon Kane.

(Updates with Israel touting in EMEA section)

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News Source : finance.yahoo.com
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Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe. Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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