US Inflation to Pose Fresh Test for Powell’s Fed: Eco Week Ahead

(Bloomberg) — The Federal Reserve gets fresh insight into its inflation challenge this week amid expectations US prices continued to rise at a stubbornly fast pace in the past month.

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The consumer price index report for October is scheduled for Thursday, and is set to have climbed 7.9% from a year ago, only a slight slowing from 8.2% recorded in September, according to the median forecast of economists surveyed by Bloomberg News.

Strip out food and energy and the index likely edged down to a 6.5% result from September’s 6.6% advance. That’s still far above the 2% inflation the Fed targets based on a separate gauge.

On a month-over-month basis, the core measure is projected to rise 0.5%, matching the average pace since October of last year and indicating the Fed has made little progress arresting rampant inflation with its series of jumbo rate hikes.

Fed officials, led by Chair Jerome Powell, raised their key interest rate on Nov. 2 by 75 basis points for the fourth meeting in a row.

While they hinted at a potential willingness to slow the pace of increases when they next gather in December, that will ultimately depend on whether the outlook for inflation cools. Policy makers are already signaling that rates may peak at a higher level than previously assumed.

What Bloomberg Economics Says:

“On the surface, the core reading, which excludes food and energy, should contain some good inflation news for Fed doves. Price pressures in both core goods and services will likely moderate.”

–For more, read the full Week Ahead for the US

The inflation surge certainly has implications for lawmakers as US voters go to the polls on Tuesday. Opinion polls suggest Democrats will lose control of the House of Representatives and possibly the Senate as well.

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

Asia

Japan is expected to give details early in the week of a $200 billion extra budget to fund its latest economic stimulus package. How much will be funded by new issuance of bonds will be under close scrutiny as the country adds to the developed world’s worst public debt load.

Japanese wage and spending figures out Tuesday are likely to show a continued fall in households’ purchasing power and expenditure as inflation strengthens. Daily intervention data for September are expected to show just one entry into markets to prop up the yen before Japan ramped up its strategy in October.

Reserve Bank of Australia’s Deputy Governor Michele Bullock sheds light on the latest thinking on policy as the central bank appears to settle on an extended regular sized rate-hike strategy.

China is set to report trade data on Monday and inflation numbers on Wednesday, with weakening factory prices and tame consumer prices another sign of weakness in momentum.

Indonesia posts GDP data on Monday and the Philippines does so on Thursday.

Europe, Middle East, Africa

The week kicks off with a meeting of euro-area finance chiefs in Brussels. They’re likely to lament the economic woes of a region that seems headed for recession while consumer prices are at a record high.

A flurry of European Central Bank officials are scheduled to speak, among them President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane.

In the UK, third-quarter output on Friday is expected to show a contraction of 0.5%, evidence that the economy is already in a recession that the Bank of England predicts may rival that of the 1990s. Four BOE rate setters — including Chief Economist Huw Pill — will be watched for any indication on what the UK central bank may do at its next meeting after its latest 75 basis-point hike.

In eastern Europe, the central banks of Poland and Romania are predicted to lift rates to 7% and 6.75%, respectively. Serbia will also have to decide whether to shift, days after striking a deal with the International Monetary Fund.

Data from Ghana on Wednesday may show annual inflation in October was almost quadruple the 10% ceiling of the central bank’s target. Egyptian inflation for October may be little changed from the previous month’s 15% on Thursday, in data that encompass a period before the latest devaluation of the pound.

Latin America

Chile posts a raft of economic data on Monday, including trade and copper exports, followed by October inflation figures Tuesday that are expected to show a second straight year-on-year decline from August’s 14.1% cycle high.

In Brazil, government election-related stimulus spending and tax cuts should bolster September’s retail sales figures. Look for a dramatic slowdown in consumer prices to extend into October, with early estimates of 6.4% nearly 600 basis points below April’s reading.

Analysts continue to mark up their third-quarter growth forecasts for Colombia’s economy, suggesting strong September results for manufacturing, industrial output and retail sales.

Peruvian central bank chief Julio Velarde last week sounded very much like a policy maker ready to snap a record tightening cycle that’s raised the key rate to a two-decade high 7%. Both inflation and the economy are slowing.

The focus of a busy week in Mexico will be squarely on a full set of consumer price data and the central bank’s Thursday rate decision.

While headline inflation is forecast to slow from a third-quarter peak, it’s the core readings that worry policy makers led by central bank chief Victoria Rodriguez. That, along with a surprisingly strong third-quarter GDP report and an unrelenting Fed, should move Banxico to hike the key rate to a record 10%.

–With assistance from Zoe Schneeweiss, Malcolm Scott and Robert Jameson.