Another U.S. Inflation Gauge Is Heading Even Higher: Eco Week

(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Most Read from Bloomberg

Federal Reserve Chair Jerome Powell and his colleagues in the coming week can expect to see their key inflation metric accelerate to a fresh four-decade high last seen when Paul Volcker led the U.S. central bank.

The personal consumption expenditures price index, which the Fed uses for its inflation target, probably jumped 6% in January from a year earlier, according to the median of a Bloomberg survey of economists. The core measure, which excludes food and fuel, is forecast to climb 5.2%.

Less than a month before the Fed’s next policy meeting, a sharper-than-projected advance in the price gauge could turn up the heat for a half-point increase in the benchmark interest rate. January’s consumer-price index rose more than forecast, with broad advances in the costs of goods and services.

Investors will gauge central bankers’ appetite for a half-point move after speeches by Governors Christopher Waller and Michelle Bowman and regional Fed presidents Loretta Mester of Cleveland, an FOMC voter in 2022, Raphael Bostic of Atlanta, and Thomas Barkin of Richmond.

JPMorgan Chase & Co. economists said in a report over the weekend that the Fed is likely to raise interest rates by 25 basis points at nine consecutive meetings, through March 2023, in a bid to tamp down inflation.

Inflation at the earlier stages of the production process also remains elevated, with fears of a potential Russian military invasion of Ukraine contributing to rising costs of oil and other commodities.

The Commerce Department’s report on Friday will also indicate how consumer spending and incomes fared in January, before and after adjusting for inflation. Other reports on the schedule include new-home sales, consumer confidence and durable goods orders.

February readings of manufacturing and services from IHS Markit earlier in the holiday-shortened week will shed some light on the U.S. economy’s rebound from omicron-related softness a month earlier. Economists are calling for a modest quickening in the pace of activity.

What Bloomberg Economics Says:

“An escalation of the Russia-Ukraine conflict may result in an unfavorable mix of even higher energy prices, tighter financial conditions and an adverse confidence shock — all relevant to Fed thinking on the appropriate pace of tightening.”

–Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger. For full analysis, click here

Elsewhere, central banks from Hungary to New Zealand may hike rates again, the Bank of England governor will testify in Parliament, and South Africa announces its budget.

Click here for what happened last week and below is our wrap of what’s coming up in the global economy.

Asia

Asia-Pacific’s leading rate hikers both meet this week, with the Reserve Bank of New Zealand widely expected to push up interest rates again on Wednesday as inflation continues to soar.

The Bank of Korea is seen holding steady at Lee Ju-Yeol’s final meeting as governor, having already raised borrowing costs three times since the summer.

Preliminary trade figures from South Korea, due at the start of the week, will give the latest pulse check on global trade.

The Reserve Bank of Australia will closely scrutinize wage growth data on Wednesday amid continued speculation that higher rates will come sooner rather than later. Capital spending figures on Thursday may also fuel rate-hike chatter Down Under if they show greater-than-expected strength.

February inflation figures for Tokyo at the end of the week will probably show price growth still at a subdued level compared with the rest of the world despite accelerating energy bills vexing Japanese voters ahead of a summer election.

Having left its MLF rate unchanged, China will likely also hold its loan prime rate steady on Monday. Meanwhile, Hong Kong, struggling to contain a coronavirus wave, will announce its budget on Wednesday.

Europe, Middle East, Africa

Purchasing manager surveys in the euro region and U.K. will reveal the health of manufacturing and services just as coronavirus restrictions thaw. Economists predict all gauges will show improvement in February. That’s also the case for Germany’s Ifo business confidence index and an equivalent measure in France.

Such data will inform European Central Bank policy makers as the balance of opinion hardens toward raising rates this year to quell inflation. At least six ECB officials will make public remarks in the coming week, including Vice President Luis de Guindos and Executive Board member Isabel Schnabel.

BOE officials are widely predicted to raise rates again in March. For clues on the size of the move, investors will scrutinize testimony by Governor Andrew Bailey and colleagues on Wednesday, along with other scheduled speeches.

In Sweden, where Riksbank Governor Stefan Ingves used his vote this month to defeat a push to remove stimulus, minutes of that meeting will be released on Monday.

In eastern Europe, Hungary’s central bank is expected to raise two interest rates at separate monthly and weekly meetings, while Polish Governor Adam Glapinski’s second term in office may be put to a vote in Parliament.

Israel is expected to hold its key rate at a record-low 0.1% on Monday, but may shift toward a more hawkish tone after inflation exceeded 3% for the first time in more than six years. Some economists now predict multiple rate hikes this year, starting as soon as April or May.

Data on Tuesday is likely to show South Africa’s official unemployment rate reached a record 35% in the final quarter of last year, when its economic recovery stalled following the discovery of the omicron coronavirus variant.

Finance Minister Enoch Godongwana presents the nation’s budget on Wednesday, with the focus on reining in debt, reducing loan-service costs, and narrowing the deficit. Better-than-expected tax collection may lead to an improvement in key metrics.

Godongwana will also provide an update on government projections, along with guidance on the funding of a year-long extension to a monthly grant for the jobless.

Latin America

Better-than-expected data since the Jan. 31 posting of Mexico’s flash fourth-quarter output report raises the possibility of a slight upward revision when the final reading is published in the coming week.

Brazil reports out its broadest measure of inflation, the mid-month reading of consumer prices, as well as national unemployment figures. A light week in Argentina sees the release of reports on the budget balance, trade and December economic activity.

Peru posts just one economic indicator but it should be memorable: after an 11.1% contraction in 2020, GDP for 2021 may have expanded more than 13%, with some estimates as high as 15%.

On the monetary policy front, Paraguay’s central bank meets to consider a seventh straight rate hike.

Mexico’s mid-month consumer price report will be closely watched as central bank forecasts call for the economy to be past the worst of last year’s inflation surge.

Look for the minutes of Banxico’s Feb. 10 meeting –- where it raised the key rate to 6% — to address key issues such as elevated core inflation readings and looming Fed policy shifts.

(Updates with JPMorgan rate forecasts)