(Bloomberg) — Next week’s U.S. inflation figures will confirm that long-awaited rate cuts are coming soon, while a gauge of consumer spending suggests the central bank has been successful in keeping growth afloat.
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Economists expect the personal consumption expenditures price index excluding food and energy — the Fed’s preferred measure of underlying inflation — to rise for a second month in July, by 0.2%. That would bring the quarterly annualized rate of so-called core inflation down to 2.1%, a fraction above the central bank’s 2% target.
Economists in the Bloomberg survey also expect consumer spending, unadjusted for price changes, to rise 0.5% — the strongest increase in four months — in Friday’s report.
Speaking at the Jackson Hole symposium, Fed Chairman Jerome Powell acknowledged recent progress on inflation, saying he was confident inflation was back on track to 2% and that “the time has come for policy action.”
Friday’s remarks marked a major turning point in the Fed’s two-year battle against price pressures and underscored how the focus has shifted to labor market risks — the other part of the central bank’s dual mandate. Employment growth has helped keep consumer spending buoyant — a key to underpinning the economic expansion.
On Thursday, the government will publish its first revision to the second quarter’s gross domestic product. The median economist forecast is for an annualized growth rate of 2.8%, unchanged from the previous reading.
Other U.S. data in the week ahead include July durable goods orders on Monday and separate consumer confidence indexes on Tuesday and Friday.
What Bloomberg Economics says:
“Powell’s very dove-like speech in Jackson Hole was music to the ears of market participants. He promised that the Fed would do ‘whatever’ it can to support a strong labor market, thereby creating a floor for the economy. We think a bit of a reality check is in order.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou. For a full analysis, click here.
Further north, Canada’s second-quarter GDP figures will be the last major economic release before the central bank is expected to cut interest rates for the third straight time on September 4.
Preliminary data pointed to annualized quarterly growth of 2.2%, higher than the central bank’s forecast of 1.5%, reinforcing its efforts to achieve a soft landing while continuing to lower borrowing costs.
Investors will also be closely monitoring the latest developments in the resolution of a dispute over Canadian railways that has roiled North American supply chains.
Elsewhere, the eurozone will report August inflation less than two weeks before the European Central Bank makes its next decision on monetary policy, while the People’s Bank of China will set the interest rate on its one-year policy loans. Rate decisions include Hungary and Israel.
Click here for the events of the past week. Below you will find an overview of developments in the global economy.
Asia
The week begins with a renewed focus on China’s new monetary framework, as the People’s Bank of China sets the interest rate on its one-year policy loans. After a surprise cut in July, authorities are expected to keep rates steady at 2.3%.
Monday’s decision follows the PBOC’s signal this month that it wants to downgrade the role of the medium-term loan as a policy instrument while giving greater prominence to the seven-day reverse repo rate.
A day later, China will get industrial profit figures, which could lead to calls for more policies to stimulate the economy. On Saturday, Beijing will see the official PMI figures.
Elsewhere, prices will be a theme.
Australia’s lower inflation figures for July provide the central bank with fresh information to help it decide whether to maintain its hawkish rhetoric.
Japan will also get an update on consumer inflation for the capital, a key indicator of national trends. Data on Friday may show India’s annual economic growth slowed slightly in the second quarter, and trade figures from Thailand, Sri Lanka and Hong Kong are expected later this week. Kazakhstan’s central bank meets on Thursday to decide whether to cut its key interest rate for a third straight meeting.
Europe, Middle East, Africa
Inflation figures are also in the offing for Europe. Figures are expected for August from the region’s major economies: Germany, France, Italy and Spain. Figures are also expected for the entire eurozone, consisting of 20 countries.
The bloc is expected to slow from July’s 2.6%, paving the way for the ECB to cut interest rates for the second time this cycle when it meets in September.
Such expectations have been reinforced by the continent’s economic situation. While the August Purchasing Managers’ Index got an unexpected boost from the Paris Olympics, underlying weakness is likely to persist after that temporary rise. Early in the week, there will be updates on output and sentiment in Germany, the region’s current weak spot.
Speakers likely to comment on monetary policy and the latest economic developments include ECB Governing Council members Joachim Nagel and Klaas Knot, and Executive Board member Isabel Schnabel.
In Eastern Europe, Hungary is expected to keep interest rates at 6.75%. It’s a similar story in the Middle East, where Israel’s central bank is keeping benchmark borrowing costs at 4.5%.
In Africa, August inflation figures from Kenya and Uganda are released, along with second quarter GDP figures from Nigeria.
Latin America
Brazil’s central bank will publish its weekly survey of economists on Monday. Bank President Roberto Campos Neto said this month that inflation expectations were not set in stone and that officials were ready to tighten monetary policy if needed.
Brazil’s mid-month inflation data on Tuesday showed a possible slight decline from July’s 4.45%, still well above the 3% target. Analysts raised their rate forecasts while traders priced in a hike as early as next month.
Fiscal slowdown has put Brazil’s budget data — July figures are due next week — in the spotlight. Economists polled by the central bank see no annual nominal or primary budget surplus over the 2027 forecast horizon.
The main event in Mexico will be the central bank’s quarterly inflation report. New forecasts are unlikely so soon after the revisions in the bank’s August 8 post-decision communiqué, but policymakers may revisit GDP estimates.
Chilean retail sales in June are likely to post positive figures for the seventh consecutive year, after nearly two years of declines.
–With assistance from Robert Jameson, Laura Dhillon Kane, Zoe Schneeweiss, Paul Richardson, and Brian Fowler.
(Updates with Canadian railway dispute in 10th paragraph)
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