Fed Rate Puzzle Gets Final Inflation, Retail Pieces

(Bloomberg) — Reports this week expected to show still-hot US inflation and a backslide in retail sales round out the last of key economic data markers for Federal Reserve policymakers ahead of their upcoming meeting.

Most Read from Bloomberg

The core consumer price index, which excludes food and energy and provides a better sense of underlying inflation, is forecast to rise 0.4% for a third straight month in February. The median estimate of economists surveyed by Bloomberg also calls for a 5.5% gain from a year ago.

Tuesday’s inflation data follow fresh figures showing robust employment growth in February but also hinting at a further softening in wage gains that may help to temper price pressures in the coming months.

While inflation is seen remaining elevated as Fed policymakers consider stepping up the pace of rate hikes, officials will also consider the impact of their yearlong tightening campaign on the financial system.

The collapse of SVB Financial, a bank holding company, has roiled markets since Thursday by stoking concern that higher interest rates are imperiling small lenders.

Fed officials, who next meet March 21-22, will also get another look at the extent of consumers’ appetite for merchandise. After a January surge underscored resilient demand, Wednesday’s retail sales report for February is projected to show shoppers pulled back.

Other US data this coming week include reports on producer prices, housing starts and industrial production for February, as well as the first read on March consumer sentiment.

What Bloomberg Economics Says:

“With inflation running so far above target and spending showing such resilience, Fed Chair Jerome Powell appears to be signaling a preference to take strong inflation and activity data at face value. To be sure, not all the evidence points in the same direction: There are some signs that the labor market is softening and wages are cooling. Still, those are nuances, and a 50 basis-point hike would signal that the Fed believes this is not the time for nuance.”

—Anna Wong, Stuart Paul and Eliza Winger. For full analysis, click here

Elsewhere, the European Central Bank will probably deliver a half-point rate hike, the UK will reveal budget plans and the OECD will release new forecasts for its 38 members and other major economies.

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

Asia

China unexpectedly reappointed several top economic officials in a leadership reshuffle Sunday, giving investors greater continuity as Beijing overhauls financial regulation and grapples with escalating tensions with the US. People’s Bank of China Governor Yi Gang will remain in his post, as will the finance and commerce ministers.

On Wednesday, new activity data will show the extent of the consumer and business rebound since the reopening, with early signs of a notable pickup in household spending. Kang Yi, head of National Statistics Bureau, said Sunday that economic data for January and February, including industrial output and retail sales, have shown notable improvement.

Read more: China Signals Stability With Surprise Move to Keep PBOC Governor

Australia’s central bank chief Philip Lowe will keep an eye on business and consumer sentiment figures on Tuesday and employment numbers on Thursday as he assesses the latest data following this month’s rate hike. Investors will likely jump on any further signs of weakness in the economy that might bring the RBA closer to pausing its rate increases.

South Korea also releases jobs figures Wednesday with the labor market there still relatively resilient despite higher rates and falling external demand.

New Zealand’s GDP figures are expected to show a sharp slowdown in growth with worse expected this quarter after the worst cyclone damage in decades.

Japan’s biggest union federation releases preliminary data on this year’s spring wage negotiations on Friday. The figures will give the Bank of Japan a steer on developments in the pay trend and whether it is strong enough to support inflation and justify a paring back of stimulus.

Indonesia sets rates on Thursday.

Europe, Middle East, Africa

The ECB’s rate decision will be a key focus in the region. A half-point hike is all but certain, though investors will be watching more for signs of its intentions for May and beyond, guided by new quarterly forecasts.

A surge in underlying inflation to the fastest in euro-zone history is one point of contention as officials debate whether that measure or slowing headline price growth should be the primary focus of policy.

The Governing Council is also arguing over tactics. Its stated approach of setting rates “meeting-by-meeting” is jarring with comments from some hawks suggesting hikes might continue into the second half of the year. The dovish Bank of Italy chief, Ignazio Visco, spoke out last week to complain about such guidance well into the future.

For now, investors have begun pricing in the prospect of the deposit rate reaching 4%, requiring another 150 basis points of hikes from the current level. President Christine Lagarde’s remarks in the post-decision press conference will be scrutinized for clues on that prospect.

Read more: ECB Seen Taking Rates to 3.75% Peak as Bond Exit to Quicken

In the wake of the decision, Denmark may also adjust borrowing costs. The central bank in Copenhagen typically changes its rate in tandem with its Frankfurt counterpart.

The week will be less eventful for euro-zone data, with industrial production on Wednesday among the highlights.

The UK on Wednesday will have its first conventional budget announcement since Liz Truss’s disastrous 49-day tenure as prime minister last year.

Since Chancellor of the Exchequer Jeremy Hunt took office toward the end of her premiership, the country’s financial-market situation has stabilized and the economy has so far skirted a long-heralded recession. But a lingering cost-of-living shock, rampant strikes and worker shortages remain persistent worries.

With limited room for giveaways, he might opt to continue energy aid for households and keep up a freeze in fuel duty, with measures to support child care and fund defense spending also among possible outcomes.

Meanwhile data on Tuesday will illustrate the backdrop for the Bank of England, with earnings and unemployment likely to hint at inflation pressures in the economy.

Elsewhere in Europe, Swedish inflation will reveal the challenge faced by the Riksbank, which is struggling to bring consumer prices under control even as the economy endures what may turn out to be the worst downturn in the European Union this year. Romania and Serbia will also release equivalent reports.

Looking south, Ghanaian inflation may have eased in February for a second straight month, but remained more than five times the 10% ceiling of the central bank’s target range. That’s after a purchasing managers’ index last month signaled the first improvement for the private sector in just over a year, as price pressures eased.

Turkish current-account data will likely show one of the biggest monthly deficits on record due to energy and gold imports in January while budget numbers on Wednesday may reflect the first impact of February’s devastating earthquakes on central-government finances.

Russia’s central bank is expected to hold a rate-setting meeting on Friday. Officials have been taking a more hawkish tone as inflation risks rise.

Latin America

A raft of January data from Colombia will likely show the once-piping hot economy has slowed dramatically. Manufacturing, industrial output, retail sales and overall economic activity are turning down and even negative amid the drag from double-digit borrowing costs and inflation.

Mexico industrial production and manufacturing results for January may show cooling from December with early estimates suggesting the slowest readings since 2021.

A light week in Brazil offers up the central bank’s survey of economists’ expectations as well as January unemployment figures. With the jobless rate at a seven-year low of 7.9%, there are signs of weakening in the labor market. January formal job creation figures posted last week were stronger than expected, led by services and construction.

Lima unemployment results for February posted this week may inch up after January’s big jump to 8% from 7.1% a month earlier.

Peru’s January GDP-proxy data are likely to reflect the pressure of the nationwide protests and road blockades over the impeachment and arrest of former President Pedro Castillo.

And finally, in what’s long had an air of inevitability about it, Argentina’s February consumer price report will likely show annual inflation pushed over 100%, easily the fastest pace among Group-of-20 economies.

–With assistance from Andrew Atkinson, Andrea Dudik, Robert Jameson, Reed Landberg, Andrew Langley, Malcolm Scott and Sylvia Westall.

(Updates with PBOC governor in Asia section)