US inflation will guide the Fed Ready for the next hike: Eco Week Ahead

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(Bloomberg) — U.S. inflation data next week may send mixed signals to the Federal Reserve ahead of a possible third rate hike, with a broad measure of consumer prices likely to fall even as a gauge of underlying pressures accelerates.

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The government report is expected to show an 8% increase in the overall consumer price index compared to the same month last year, up from 8.5% in July, but historically high. Excluding energy and food, the CPI is forecast to rise 6.1%, up from 5.9% in the year to July.

Tuesday’s data, combined with recent data showing healthy job growth, increased job vacancies and resilient household spending, will help shape Fed officials’ views on whether to proceed with another rate hike by 75 basis points.

In recent speeches, US central bankers stressed that high inflation will indeed require higher borrowing costs relative to slowing demand, although they kept the door open to the size of a hike at the end of their September 20-21 meeting. Policymakers are now in a blackout period.

“We’re in it for as long as it takes to get inflation down,” Fed Vice Chairman Lael Brainard said at a conference call on Wednesday. “Monetary policy will need to be accommodative for some time to provide confidence that inflation is moving down towards target.”

Aside from the CPI, the calendar of US economic data is heavy. Reports include producer prices, industrial production, regional manufacturing surveys and consumer sentiment.

Retail sales data will suggest the pace of household demand for goods against a backdrop of increased inflation, higher interest rates and a shift to spending on services and experiences. Economists forecast a strong gain in retail markets, except for gasoline and motor vehicles.

What Bloomberg Economics Says:

“August inflation gauges will likely be very soft, but that won’t change the bottom line: Fed Chairman Jerome Powell’s ‘body’ of data shows few signs of cooling in the economy, and maybe even some acceleration.”

–Anna Wong, Andrew Husby and Eliza Winger, economists. For a full breakdown, click here

Elsewhere, data showing faster UK wages and inflation are due just as the country continues to mourn its Queen and Russia’s central bank may cut interest rates.

Click here for what happened last week and below is our content on what’s coming in the global economy.

Europe, Middle East, Africa

As the United Kingdom continues a national period of mourning for the loss of Queen Elizabeth II, the Bank of England postponed for a week its policy meeting and a possible aggressive interest rate hike scheduled for Thursday.

The delay will give officials more time to weigh data that will further illustrate the impact of the country’s cost-of-living crisis. That includes wages data on Tuesday, which is expected to show a rebound, and inflation on Wednesday, which could escape more than 10%.

European Central Bank policymakers, fresh from unprecedented monetary tightening with a three-quarter rate hike, will be making plenty of speeches. Among them is Executive Board member Isabel Schnabel at a research conference organized by the central bank.

Bundesbank chief Joachim Nagel said on Sunday that he would need to keep raising interest rates if the current trend in consumer prices continues.

Among the potentially noteworthy data are German investor confidence on Tuesday and European industrial production on Wednesday, both of which may signal how the economy is responding to a shortage of natural gas from Russia.

Further north, Swedish inflation is forecast to jump more than a percentage point to close to 10%. That will inform Riksbank officials, who are considering whether to raise interest rates by 75 basis points next week.

Instead, Russia’s central bank is expected to cut interest rates again on Friday as inflation slows and so does the economy.

Data in Israel on Thursday will show how widespread price increases have been, a month after inflation unexpectedly jumped to 5.2 percent. The Bank of Israel now believes there will be no significant rate cut before the end of the year and is expected to continue aggressively raising interest rates.

Ghana’s data on Wednesday will likely show that inflation accelerated to more than triple the central bank’s 10% upper limit target for the currency’s weakness. The bank next meets on September 20 — and will announce its decision on September 26 — after raising the key rate by the largest margin since 2002.

Thursday’s data will likely show that inflation in Nigeria accelerated to more than double the central bank’s 9% ceiling as the naira continues to fall. The rise may prompt it to raise its rate for a third consecutive meeting on September 27.

Asia

In Japan, the yen’s slide to fresh 24-year lows is likely to keep investor interest narrowly focused on comments from senior officials about any further moves and whether the possibility of currency market intervention is closer.

Thursday’s data will show the impact of the weaker yen on the trade balance of the world’s third-largest economy.

In China, the central bank is expected to keep the key interest rate unchanged on Thursday after last month’s surprise cut. Key economic indicators on Friday will be closely watched to see the extent of damage from Covid lockdowns and power cuts during August.

Down Under, jobs data will show how long the recovery lasts, with the Reserve Bank of Australia now looking more likely to return to smaller rate hikes.

New Zealand’s economy is expected to have returned to growth as it weathers a continuing flurry of half-percentage increases, with the Reserve Bank of New Zealand poised to push for more.

On Thursday, Sri Lanka will present second-quarter GDP data that is likely to show a further contraction in the crisis-hit economy.

In South Korea, unemployment figures on Friday will show how tight the country’s labor market remains.

Latin America

In Argentina, all signs point to a burst of inflation extending into August, with the annual rate coming in at just under 80%. A local advisory group is predicting a year-end reading of just 100%.

The Central Bank’s surveys of economists in Brazil and Chile may reflect August’s sharp drop in inflation rates in the former and Banco Central de Chile’s outsized rate hike on Sept. 6 in the latter.

Midweek data may point to a rebound in core retail sales in Brazil, while broad readings extend a year-long decline. Brazil’s GDP proxy data is expected to show that the strong finish to the second quarter extended into July.

The week will also provide an update on Latin America’s hottest economy as Colombia releases July reports on retail sales, manufacturing and industrial production. A 55th straight monthly trade deficit is expected as imports remain near a 30-year high.

Mid-month reports from Peru include the August unemployment printout for the country’s capital, Lima, as well as GDP data for July. The economy lost some momentum in the second quarter and is headed for a difficult second half.

(Updates with Nagel in the EMEA section)

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