(Bloomberg) — Next week’s U.S. inflation data is expected to signal a gradual downward trend in inflation, and help determine the size of the Federal Reserve’s next interest rate hike.
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The consumer price index excluding food and energy, known as the core CPI and seen as a better indicator than the headline measure, rose 0.3 percent in December.
Although slightly higher than in November, the monthly advance was in line with the quarterly average and below the 0.5% average seen in January through September, the highest rate of inflation in a generation.
Thursday’s figures will be the last reading policymakers will see before the Jan. 31-Feb. 1 meeting and rate decision, with a new rotation of first voting members. Economists are bullish on a 25 basis-point increase in the Fed’s benchmark rate, though officials have suggested a half-point hike is possible.
The Labor Department’s CPI core inflation is expected to show a 5.7 percent increase from a year ago. This is the highest December to December print since 1981. While well above the Fed’s target, and helping to explain policymakers’ willingness to hold rates longer, year-over-year rate growth has been improving.
The report comes about a week after the latest US jobs report showed that wage growth, the main driver of inflation, slowed in December.
Read more: Fed gets ‘Goldilocks’ report: Slow wage growth, strong employment
The CPI figures highlight a relatively quiet week of data that boosted weekly jobless claims and consumer sentiment for January. The Washington-based World Bank released its annual bilateral economic outlook on Tuesday and warned of the risk of a recession in its brief statement.
What Bloomberg Economics Says
“Good inflation developments are not the result of a Fed rate hike – they are often attributed to China’s recovery from Covid-19 and often a warm winter. Still, the decline in energy prices has helped reduce inflation expectations significantly in the near term and made inflationary concerns more two-sided. If this trend continues, it could be the ‘compelling’ evidence the Fed needs to see before pausing or considering rate cuts.
– Anna Wong and Eliza Winger Economists For the full analysis, click here
Elsewhere, data expected to show faster price gains in Japan and China, as well as an assessment of how Germany’s economic growth will slow in 2022, will draw investors’ attention.
Click here for what happened last week and our roundup of what’s coming up in the global economy.
Asia
South Korea kicks off this year’s Asian central bank decisions, with the Bank of Korea poised to make the final increase in its current tightening cycle on Friday as growth concerns grow.
Governor Rhee Chang-yong is focusing on inflation, becoming more cautious about the impact of higher borrowing costs on the economy.
In Japan, CPI numbers from Tokyo on Tuesday may show a further acceleration in inflation as investors closely watch the Bank of Japan for a surprise monetary policy move in December.
Down below, Australia is set to report retail sales and CPI numbers, with inflation expected to pick up.
China’s December PPI is expected to show inflation remains unchanged, with consumer inflation rising slightly.
The People’s Bank of China is set to release monthly credit data to assess whether monetary stimulus is flowing through the economy.
India will release inflation data, likely showing a third consecutive month of cooling prices.
Europe, Middle East, Africa
The first international monetary conference of 2023 will be held on Tuesday, with a focus on central bank independence and hosted by newly installed Riksbank governor Erik Tedin.
The federation’s chief executive, Jerome Powell, and peers from England, Canada, the Netherlands and Spain are expected to speak. European Central Bank Executive Board member Isabelle Schnabel is also scheduled to appear.
Friday will feature several data releases. Statisticians in Germany publish estimates of economic growth in 2022. Normally, the first such assessment among the Group of Seven industrialized countries, the report may indicate the performance in the fourth quarter.
The numbers are indicative of how Europe’s biggest economy has been battered in the post-pandemic energy crisis that followed Russia’s invasion of Ukraine. Officials believe Germany is currently in recession.
In the broader euro area, industrial production in November may show a partial recovery from last month’s decline. ECB statistics are also published showing that banks have paid off more long-term loans.
The UK’s November growth data on Friday is also expected by economists to show the slowest pace since October. The report may help confirm the Bank of England’s concerns that the economy there is also in decline.
After days of euro-zone inflation slowing to single digits in a release that still showed strong pressures, consumer price data from Norway, Sweden, Denmark and the Czech Republic will be celebrated for the week. Russia and Ukraine release comparable statistics.
Among central bank decisions, Romanian authorities are expected to increase the key rate on Tuesday, while their Serbian counterparts are likely to do the same two days later. Kazakhstan’s currency decision is on Friday.
Latin America
Mexico will close full-month and bi-weekly consumer price reports for 2022 on Monday, and most analysts are forecasting a modest acceleration of around 8%. Core readings above 8% and a relatively rapid cooling of US inflation may push Banksco to extend its record hiking cycle.
Brazil will post December consumer price data on Tuesday, with analysts expecting a print of around 5.6%, below the 2022 peak of 650. A drop in unemployment, inflation and government spending could dampen retail sales in November.
Many economists are showing Argentina’s consumer price forecasts for 2022, with around 95% agreement on December’s year-over-year results.
Hours before Peru’s central bank’s rate meeting last month, the country’s president tried to dissolve Congress and was subsequently charged and arrested. Political instability and persistently high inflation make an 18th straight hike more than a coincidence.
Returning to Brazil, Latin America’s largest economy looks set to outperform in 2022, but signs of a downturn abound. Preliminary estimates point to a second straight decline in the November GDP-proxy reading posted on Friday.
–With assistance from Nasreen Seria, Michael Winfrey and Robert Jameson.
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