(Bloomberg) — The Federal Reserve’s favorite inflation measures are poised to post the tamest monthly progress since late last year — a springboard for officials to start cutting interest rates, possibly as early as September.
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Economists expect no change in May’s price index of personal consumption expenditure and a minimum increase of 0.1% in the core measure that excludes food and energy, based on median projections in a Bloomberg survey of economists.
The report, due Friday, is also expected to show annual progress of 2.6% in both headline and key figures. The expected increase in the core measure, which paints a better picture of underlying inflation, would remain the smallest since March 2021.
Since their last meeting, Fed officials have said that while they are encouraged by the decline in other inflation data — including the consumer price index — they still need to see months of such progress before cutting rates.
At the same time, the labor market – the other part of the Fed’s dual mandate – continues to participate, albeit at a slower pace. A healthy labor market offers policymakers some flexibility in the timing of interest rate cuts.
The latest inflation figures will be accompanied by personal spending figures that will provide information on spending on services, after recent retail sales data showed less interest in goods. The average forecast calls for a slight acceleration in both nominal personal consumption and income.
What Bloomberg Economics says:
“We do not think slower inflation pressures will be enough to convince officials by the time of the July FOMC meeting that inflation is on a solid trajectory toward the Fed’s 2% target.”
—Estelle Ou, Stuart Paul and Eliza Winger, economists. For a full analysis, click here
Other data for the week ahead includes consumer confidence figures in June and reports on contract signings in May for the purchase of both new and former homes. In addition to the third estimate of economic growth in the first quarter, the government will release durable goods orders figures for May.
In Canada, central bank governor Tiff Macklem will give a speech in Winnipeg; consumer price data for May is expected to show a fifth month of easing in core inflation, and a gross domestic product release for April, along with a preliminary estimate for May, will also provide crucial insight.
Elsewhere, inflation figures in three major eurozone economies could also encourage officials, while central banks in Sweden and Mexico are likely to keep interest rates unchanged.
Click here for what happened last week and below is our summary of what will happen in the global economy.
Asia
Asia kicks off with the release of the minutes of this month’s Bank of Japan policy council meeting.
The document is gaining interest after authorities pledged to scale back bond purchases, while also saying investors will have to wait until the end of July before getting details on the size of the cuts. Hints may come on Monday.
Elsewhere, Reserve Bank of Australia assistant governor Christopher Kent will speak on Wednesday and deputy governor Andrew Hauser will speak a day later, highlighting new evidence of hawkishness after the governor said the board would take a was considering an increase.
They speak after data on Wednesday is expected to show Australian inflation turned higher in May.
Japan will see a leading indicator of national inflation trends with the release of the Tokyo CPI gauge for June. Bloomberg Economics expects inflation in the capital to have risen to 2.1%, driven by a rise in energy prices after the government cut energy subsidies.
Other countries publishing price updates include Malaysia, Singapore and Uzbekistan.
China’s industrial gains on Thursday could reflect the benefits of an official push for equipment upgrades, according to other data, with trade statistics due this week in New Zealand, Vietnam, Sri Lanka, Thailand and Hong Kong.
South Korea gets two indicators that point to domestic demand, retail sales and consumer confidence.
Europe, Middle East, Africa
Thursday’s decision by the Riksbank will be a highlight, with economists widely expecting Swedish officials to pause their easing cycle after an initial rate cut last month – heralding a similar move expected for the European Central Bank to July to remain on hold.
As policymakers grow more confident that Sweden is closer to reining in inflation, they may approve a path of two more cuts this year to shore up an economy that European Union officials say is experiencing one of the weakest expansions in will show the entire block.
Here’s a quick look at other central bank decisions in the wider region:
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On Wednesday, Zimbabwe is expected to cut its key interest rate for the first time since introducing a new currency, the ZiG, in April to combat deflation.
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Czech policymakers may cut borrowing costs by 25 or 50 basis points on Thursday, while they cannot say inflation has been defeated.
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On the same day, the Turkish central bank is likely to maintain interest rates at 50%, waiting for a slowdown in consumer price growth from last month’s 75%. Officials are confident that financing costs will drop significantly in the second half.
In the eurozone, inflation data will arrive in three of the four largest economies by the end of the week. The reports are expected to show a slowdown in France and Spain, while price growth in Italy will remain weak.
These figures could be encouraging to officials after last month’s setback, when inflation across the region accelerated more than expected. The ECB survey on consumer price expectations will also be published on Friday.
Other reports include Monday’s German Ifo business confidence index, which is expected to show further gradual improvement in sentiment among businesses in the region’s largest economy.
Policymakers set to speak include Bank of France Governor Francois Villeroy de Galhau, whose economy is subject to intense investor scrutiny ahead of upcoming parliamentary elections. Appearances by ECB chief economist Philip Lane and the heads of the German and Italian central banks are also on the calendar.
In Britain, Bank of England officials – whose June 20 decision came closer to a possible August rate cut – will continue to avoid public communications ahead of the July 4 general election. The data there includes the final first-quarter GDP release on Friday, including current account numbers.
As for Africa, Zambia’s growth statistics for the first three months of 2024, due Thursday, could reveal some of the impact of a devastating drought. The drought is expected to reduce growth to 2.5% this year, down from 5.2% in 2023.
The following day, Kenyan inflation for June will provide a further indication of the impact that floods and heavy rains have had on food prices there.
Latin America
Mexico’s central bank will get its last consumer price survey on Monday, before Thursday’s monetary policy decision, and the figures are likely to leave the Banco de Mexico completely unimpressed. With inflation heating up again and rising further above target, Banxico will almost certainly remain at 11% for a second meeting.
The central bank is the center of attention in Brazil as it releases the minutes of its June 18-19 monetary policy meeting on Tuesday, as well as its quarterly inflation report on Thursday. Between these two is the mid-month consumer price index.
Maintaining the policy rate at 10.5% did not come as a surprise, although the relatively mild tone of the post-decision communiqué raised some eyebrows.
The Argentine economy is likely to enter a technical recession in early 2024, with deep quarterly and annual declines. Analysts polled by Bloomberg see a decline of 5.4% year-on-year, the biggest decline since the pandemic.
While many of the region’s other major inflation-targeting central banks are on the sidelines or increasingly hawkish, Colombia’s BanRep is expected to fall half a point to 11.25% – 200 basis points lower than its peak 13.25% last year – and is heading towards an end. 2024 at 8.5%.
–With help from Brian Fowler, Robert Jameson, Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek and Paul Wallace.
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