U.S. Inflation Is Probably About to Spike Yet Again: Eco Week

(Bloomberg) — Inflationary pressures in the U.S. continued to heat up at the start of the year, data are expected to show, likely putting a Federal Reserve interest-rate increase next month on autopilot.

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The consumer price index probably jumped 7.3% in January from a year ago, the largest annual advance since early 1982, according to the median projection in a Bloomberg survey of economists. Excluding volatile energy and food categories, the CPI is projected to have risen 5.9%.

The inflation data follow the government’s latest employment report, which showed newfound momentum in the labor market and faster wage growth that spurred bets that the Fed will be more aggressive in raising rates.

It’s a light week for Fed-speak, with only the Cleveland Fed’s Loretta Mester and Governor Michelle Bowman scheduled, both on Wednesday. Mester’s an FOMC voter this year and Bowman will be the first governor to make public remarks since Chair Jerome Powell’s press conference on Jan. 26.

The relative silence from Washington probably reflects the fact that both Powell and Governor Lael Brainard await Senate confirmation — Powell for another four years at the helm, and Brainard to become vice chair.

The Senate Banking Committee expects to vote on them Feb. 15, together with President Joe Biden’s three nominees to join the Fed’s Board of Governors: Lisa Cook, Sarah Bloom Raskin and Philip Jefferson. All five will then require confirmation by the full Senate.

What Bloomberg Economics Says:

“With energy and food prices still rising, Bloomberg Economics estimates that January inflation continued to exceed the average monthly run rate consistent with an annual 2% inflation target. We expect inflation to peak in February. Slightly more reassuring is that elevated inflation has not seemed to cause long-term inflation expectations to unanchor yet.”

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

Elsewhere, Russia’s central bank may increase rates by 100 basis points, perhaps the biggest move in another week of anticipated global tightening by monetary officials from Poland to Peru.

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

Asia

Japan releases household spending figures on Tuesday that could show the early impact of omicron fears on private consumption, one of the final pieces of data for quarterly GDP out the following week.

Wages will likely show continued meager gains as Prime Minister Fumio Kishida tries to lift pay in a wider swathe of the world’s third-largest economy.

Australian business and consumer confidence reports will give a check on the mood Down Under as the RBA ends its bond-buying program on Thursday, following the decision to upgrade its outlook for inflation and employment.

India and Thailand have central bank meetings on Wednesday, and Indonesia follows on Thursday.

As China returns from its week-long Lunar New Year holiday, investors will scrutinize spending figures to take the pulse of consumers in the world’s second-largest economy.

Europe, Middle East, Africa

Governor Andrew Bailey will speak on Thursday, following the Bank of England’s first back-to-back rate increases since 2004. He may explain his vote to block an even bigger hike, and could perhaps clarify comments urging pay restraint that drew a rebuke from Prime Minister Boris Johnson’s office.

On Friday, gross domestic product data will show how the U.K. economy weathered the first full month of the coronavirus omicron variant, with new growth numbers for December. Economists predict a third consecutive quarter of expansion to end 2021, with a median forecast of 1.1%.

In the euro zone, the most important data will be German industrial production for December, due on Monday. While economists anticipate a rebound from the previous month — as already seen with factory orders — that probably won’t be enough to have prevented a contraction during the fourth quarter.

After a hawkish pivot last week, markets will be listening to comments from European Central Bank President Christine Lagarde on Monday, when she addresses a European Parliament committee. ECB policy makers including Philip Lane, Luis de Guindos, Francois Villeroy de Galhau and Frank Elderson are also scheduled to speak in the coming week.

Meanwhile, the outlook for growth and inflation in the region will be a highlight of the European Commission’s forecasts due on Thursday.

Among central bank decisions, Poland and Iceland are both expected by economists to raise rates by a half point, while Romanian officials may hike by 25 basis points.

No change is seen from Sweden’s Riksbank on Thursday, with the focus turning instead to how soon officials plan to reduce bond holdings and whether borrowing costs might rise next year. Serbia’s central bank is also expected to keep rates on hold.

The biggest central bank move of the week in the region may be in Russia, where officials are expected to raise rates by another 100 basis points as inflation remains stubbornly high.

Further south, Egypt’s inflation data on Thursday is expected to accelerate to about 6.5% in January, still within authorities’ target range of 5% to 9%. Further out, its first rate increase in more than four years is expected to follow tightening in the U.S.

Data from Ghana on Wednesday is likely to show inflation exceeded the central bank’s target band of 6% to 10% for a fifth straight month. Policy makers see it staying above the ceiling for the next year and say they’re ready to take action if needed.

Latin America

Chilean inflation data out Tuesday may show that its stunning 10-month run-up took a breather in January, but no one sees a peak any time soon.

Meanwhile, tapped out consumers, elevated inflation and high interest rates point to a decline in Brazilian retail sales for December.

Mexico’s central bank on Thursday is expected to raise its key rate for a sixth straight meeting, by a half-point to 6%. One board member sees some debate over a half-point versus a quarter-point hike.

The minutes of Chile’s Jan. 26 central bank meeting may point to what’s next after the biggest rate increase in 20 years.

On Friday, Mexican industrial output figures are expected to be consistent with an economy in recession. Brazil’s monthly GDP-proxy data posted its first positive print in five months in November, but mounting headwinds suggest a negative reading for December.

Peru’s central bank may look past a sharp decline in January inflation data to maintain the current pace of tightening and take the key rate to 3.5%.

Reports out Wednesday may show inflation in Latin America’s two biggest economies is finally easing. Central bankers in Brazil and Mexico are still tightening even as both economies are in recession.