(Bloomberg) — U.S. inflation data next week is likely to support the imminent arrival of a much-needed interest rate cut, while a reading on consumer spending is likely to suggest the central bank is succeeding in keeping the economy expanding.
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Economists expect the personal consumption expenditures price index, which excludes food and energy and is the Fed’s preferred gauge of underlying inflation, to rise 0.2% for the second straight month in July, which would slow the three-month annual rate of so-called core inflation to 2.1%, just above the central bank’s 2% target.
Economists surveyed by Bloomberg also expect consumer spending, which does not account for price changes, to rise 0.5% in Friday’s report, the biggest increase in four months.
Speaking at the Jackson Hole Symposium, Fed Chairman Jerome Powell acknowledged recent developments on inflation, saying he believes it is on track to return to 2 percent and that “it is time to adjust policy.”
Friday’s comments marked a significant shift in the Fed’s two-year battle against upward inflationary pressures and underscored a shift in focus to labor market risks, another part of the central bank’s dual mandate. Job growth helps keep consumers spending and is key to ensuring the economic expansion.
The government is due to release its first revised second-quarter gross domestic product figure on Thursday, with economists’ median forecast for annualized growth of 2.8 percent, unchanged from the previous reading.
Other U.S. data due next week include durable goods orders for July on Monday and separate consumer confidence measures on Tuesday and Friday.
San Francisco Fed President Mary Daly, a 2024 FOMC voting member, is scheduled to appear on Bloomberg TV on Monday. Atlanta Fed President Raphael Bostic, another voting member, will discuss the economic outlook on Wednesday.
Bloomberg Economics:
“Chairman Powell’s very dovish speech at Jackson Hole was music to the ears of market participants, as he promised the Fed would do ‘everything’ to support a strong labor market and shore up the economy. We think a bit of a reality check is in order.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou. For a more detailed analysis, click here.
Further north, second-quarter GDP data is due to be the last major economic release before the Bank of Canada is expected to cut interest rates for the third time in a row on September 4th.
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Preliminary data showed quarterly growth at an annualized rate of 2.2%, beating the central bank’s forecast of 1.5%, suggesting the bank will intensify its efforts to achieve a soft landing while continuing to lower borrowing costs.
Investors are also keeping an eye on the latest developments in resolving a Canadian rail dispute that is disrupting North American supply chains.
Elsewhere, the euro zone will publish its August inflation numbers while China’s central bank will set the interest rate for its one-year policy loan, within two weeks of the European Central Bank’s next monetary policy decision, which also includes Hungary and Israel.
Click here to read about last week’s events, and below for our outlook for the global economy.
Asia
Attention will once again be on China’s new monetary framework as the People’s Bank of China sets interest rates for one-year policy loans. After a surprise cut in July, authorities are expected to keep rates unchanged at 2.3%.
Monday’s decision came after the People’s Bank of China signalled this month that it would downplay the role of its medium-term lending facility as a policy tool while placing more emphasis on the seven-day reverse repo rate.
The day after, China is due to release industrial profits data that could spark calls for further policy measures to stimulate the economy, and Beijing is due to release its official Purchasing Managers’ Index (PMI) on Saturday.
Elsewhere, price will be a theme.
Australia’s adjusted average inflation reading for July will provide further evidence for the central bank to consider as it considers whether to maintain its hawkish stance.
Japan will also get the latest data on its capital’s consumer price index, a leading indicator of domestic trends.Data on Friday could show India’s economic growth slowed slightly in the second quarter from a year earlier, and trade data is due to be released this week for Thailand, Sri Lanka and Hong Kong.Kazakhstan’s central bank meets on Thursday to decide whether to cut policy interest rates for a third consecutive time.
Europe, Middle East, and Africa
Inflation data will also be a focus in Europe, with August figures due to be released from Europe’s major economies – Germany, France, Italy and Spain – as well as figures for the 20-nation eurozone as a whole.
European Union growth is expected to slow from 2.6 percent in July, increasing the likelihood that the ECB will cut interest rates for the second time this term when it meets in September.
These expectations are being further strengthened by the struggling economic situation in continental Europe. The purchasing managers’ index for August unexpectedly picked up due to the Paris Olympics, but underlying weakness is likely to persist beyond the temporary uptick. Early this week an update on output and business confidence is due to be released from Germany, the current weak spot in continental Europe.
Speakers who may comment on monetary policy and recent economic developments include ECB Governing Council members Joachim Nagel and Klaas Knot, as well as Governing Council member Isabel Schnabel.
In Eastern Europe, Hungary is expected to keep interest rates unchanged at 6.75%. The situation is similar in the Middle East, where the Central Bank of Israel is expected to keep its benchmark borrowing cost unchanged at 4.5%.
In Africa, Kenya and Uganda are due to release their August inflation figures, as well as Nigeria’s second-quarter GDP figures.
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Brazil’s central bank is due to release its weekly survey of economists on Monday. Central bank governor Roberto Campos Neto said this month that inflation expectations were fluctuating and that authorities were ready to tighten monetary policy if necessary.
Brazil’s mid-month inflation data due on Tuesday is likely to show a slight easing from 4.45% in July but still well above the 3% target. Analysts have been upgrading interest rate forecasts and traders are expecting a hike as soon as next month.
The fiscal delays have put Brazil’s budget data (July figures are due to be released next week) in focus, with economists surveyed by the central bank not expecting an annual nominal or primary budget surplus in the 2027 projection period.
The main event in Mexico will be the central bank’s quarterly inflation report. A new forecast is unlikely to be released anytime soon after the bank made revisions in its post-policy statement on Aug. 8, but it’s possible policymakers will revisit their GDP estimates.
Chile’s retail sales in June are expected to post a seventh consecutive year-on-year increase after nearly two years of declines.
–With assistance from Robert Jameson, Laura Dhillon Kane, Zoe Schneeweiss, Paul Richardson, and Brian Fowler.
(Updated to add Fed speaker in 8th paragraph.)
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