Cooling core inflation will provide minimal relief to the Fed

(Bloomberg) — U.S. core inflation likely moderated in April for the first time in six months, offering a glimmer of hope that price pressures are starting to ease again after a series of upward surprises.

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The core CPI, which excludes food and fuel, is expected to rise 0.3% from the previous month after rising 0.4% during the first quarter. The Bureau of Labor Statistics is scheduled to release its Consumer Price Index report on Wednesday.

Compared to April 2023, the core CPI is expected to rise by 3.6%. While this annual increase would be the smallest in three years, it is still going too fast to appease Fed policymakers, who want evidence that inflation is consistently slowing as they debate the timing of interest rate cuts.

The overall CPI is likely to rise by 0.4% for the third month in a row as gasoline prices reach their highest level in six months. While commodity prices have fallen considerably, costs for basic services remain high, which explains why inflation was flat in the first quarter.

Part of the difficulty the Fed has had in bringing inflation down toward its 2% target lies with the resilient American consumer. Retail sales in February and March advanced strongly, although economists’ forecasts for April suggested that households took a break. These numbers are also scheduled to be released on Wednesday.

On Tuesday, economists will analyze the government’s report on producer prices to assess the impact of categories such as health care and portfolio management that feed into the Fed’s preferred measure of inflation – the personal consumption expenditures price index.

Other reports next week include housing construction and industrial production for April.

Federal Reserve Chairman Jerome Powell is scheduled to speak Tuesday at an event for foreign bankers in Amsterdam. Regional Fed Chairs Loretta Mester of Cleveland and Raphael Bostic of Atlanta — who vote on policy this year — are also scheduled to speak.

What Bloomberg Economics says:

“April’s core CPI report may look encouraging – we expect it to slow compared to March – but we see a high likelihood that this month’s core PCE reading, a bigger concern for the Fed, will remain strong.”

—Anna Wong, Stuart Ball, Elisa Wenger, and Estelle Au, economists. For the full analysis, click here

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Heading north, Canadian data on existing home sales for April will reveal whether the spring market is heating up as buyers anticipate interest rate cuts. Data on housing, manufacturing and wholesale starts will also be released.

Elsewhere, figures on the strength of the Chinese and Japanese economies, UK wages data and the latest EU forecasts will keep investors busy in the coming days.

Click here to find out what happened last week. Below is a summary of what will happen in the global economy.

Asia

China publishes a slew of data on Friday expected to show a strong start to the second quarter, with growth in industrial production, retail sales and investment in fixed assets accelerating year-on-year.

But the decline in the housing sector will continue to pose risks, with real estate investment expected to decline by more than 9%.

The Japanese economy is estimated to have contracted in the first quarter due to a decline in private consumption and business investment, as well as the first negative contribution from net exports in a year. These numbers are scheduled for Wednesday.

Growth is likely to rebound again in the second quarter thanks to a recovery in auto production, according to Bloomberg Economics.

On Friday, Malaysia announced GDP figures.

Australian wage growth is likely to rise slightly in the first quarter, with the unemployment rate expected to rise to 3.9% in April.

Meanwhile, Australian Treasurer Jim Chalmers told Bloomberg that the budget would see a bigger boost to the country’s critical minerals industry, describing the lucrative market as a “golden opportunity.” He is scheduled to release his annual financial plan on Tuesday evening.

Trade statistics are due for release in Indonesia and Singapore, and the Philippines’ central bank is expected to keep its benchmark interest rate at 6.5% on Thursday.

Europe, Middle East, Africa

The UK will be in the spotlight with labor market data that may encourage policymakers to watch inflation pressures ease.

Average weekly earnings, excluding bonuses, rose 5.9% annually in the first quarter, according to economists’ average estimates.

Although the ongoing downward shift remains strong, it would embolden Bank of England officials, two of whom voted on Thursday in favor of an immediate cut in borrowing costs versus seven who favored no change.

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In the wake of this decision, speeches by UK policymakers will attract attention. Among them is the Bank of England’s chief economist, Hugh Bell, who is scheduled to speak on Tuesday.

In the eurozone, the calendar includes several European Central Bank officials. The governors of the Netherlands, Germany, France and Italy are among those scheduled to speak. The European Central Bank is scheduled to release its semi-annual financial stability review on Thursday.

Tuesday’s German ZEW investor confidence number will be the highlight of a quieter week for data. The final report on euro zone inflation for April will be published on Friday.

The Brussels-based European Commission will release economic forecasts for the region on Wednesday, including forecasts for growth, inflation, debt and deficits.

In Sweden, where the Riksbank cut interest rates on May 8 and pledged more this year, minutes of that decision will be published on Wednesday, along with the latest inflation reading.

GDP figures from Norway and Poland will be published next week.

Romania’s central bank may on Monday cut its interest rate for the first time in three years as inflation there gradually eases. The country’s latest consumer price and growth figures are also scheduled to be released in the coming days.

To the east, inflation in Russia is likely to remain close to 7.7%, based on weekly data from the Ministry of Economy. Meanwhile, GDP figures may show a recovery in growth in the first months of 2024.

Bloomberg Economics estimates that the Russian economy expanded 5% year-on-year in the first quarter, from 4.9% in the previous three months, supported by war spending and consumer confidence.

Heading south, Israel’s inflation rate may have slowed to 2.5%, further evidence that Israel’s war against Hamas has had little impact on increases in the cost of living.

In Nigeria, consumer price growth is expected to accelerate to more than 34% in April, partly due to a tripling of electricity prices for some urban consumers.

Elsewhere in Africa, two central bank decisions are scheduled:

  • Zambian policymakers are likely on Wednesday to raise the key interest rate for a sixth straight meeting to support the kwacha, which is trading at record low levels against the dollar.

  • Angola’s monetary authority may follow suit on Friday and raise its index for the second time in a row to combat inflation, which is expected to continue to rise due to the reduction in fuel subsidies.

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latin america

The Colombian economy may have expanded slightly in the first quarter, supported by stronger-than-expected production in February.

The central bank raised its growth forecast for 2024 to 1.4% from 0.8%, while reducing estimates for next year to 3.2% from 3.5%.

Data on industrial production, manufacturing and retail sales, which have gone 12 months without a positive reading, are also available.

Meanwhile, Colombia’s top monetary policy official warned that the central bank should be careful that accelerating interest rate cuts could reflect the pace of slowing inflation.

The Brazilian economy rebounded at the end of the year and remained strong in the first two months of 2024. The February GDP reading was slightly better than expected on the back of a minimum wage hike and government income support for low-income families.

Peru’s GDP numbers for March may have lost some momentum after posting a higher-than-expected reading in February.

The economy is expected to rebound from its recession in 2023, but the damage has been done: the number of Peruvians living in extreme poverty reached an 11-year high last year.

In Uruguay, inflation of 3.68%, which is within the central bank’s target range, may prompt policymakers to cut borrowing costs for the second meeting in a row from the current level of 8.5% on Thursday.

Argentine President Javier Miley’s shock therapy to the country’s crisis-plagued economy has begun to produce results on the inflation front.

Analysts now expect the April reading to be 9% month-on-month, down from the 13% forecast in January, with the year-end reading down about 66 percentage points at 161.3%.

-With assistance from Robert Jameson, Monique Vanek, Piotr Skolimowski, Paul Wallace, Tony Halpin, and Brian Fowler.

(Updates with the Central Bank of Colombia in the Latin America section)

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