Fed rate cuts could become more likely after a key inflation report

Economists expect no change in May’s personal consumption expenditures price index and a marginal gain of 0.1% in the core measure that excludes food and energy, based on the median forecast in a Bloomberg survey of economists.

The report, due on Friday, is also expected to show 2.6% annual advances in both headline and core measures. The expected increase in the core measure, which gives a better picture of core inflation, will remain the smallest since March 2021.

Since their last meeting, Fed officials have said that while they are encouraged by the softening of other inflation data — including the consumer price index — they need to see months of such progress before to lower the rates.

At the same time, the labor market – the other leg of the Fed’s dual mandate – is still growing, albeit at a slower pace. A healthy labor market is giving policymakers some flexibility in timing interest rate cuts.

The latest inflation figures will be accompanied by personal spending figures that will inform spending on services as the latest retail sales data showed less appetite for goods. The medium forecast calls for a slight acceleration in nominal personal consumption as well as income.

What Bloomberg Economics Says: “We don’t think the slower inflation squeeze will be enough to convince officials by the time of the July FOMC meeting that inflation is on a strong trajectory to the Fed’s 2% target” . -Estelle Ou, Stuart Paul and Eliza Winger, economists.

Among other data next week are readings on consumer confidence in June and reports on May contract signings for new and pre-owned home purchases. In addition to the third estimate of economic growth in the first quarter, the government will release figures for durable goods orders for the month of May.

In Canada, central bank governor Tiff Macklem will speak in Winnipeg, consumer price data for May is expected to show core inflation easing for a fifth straight month and a gross domestic product release for April along with a Quick assessment for May will also provide crucial insight.

Elsewhere, inflation figures in the eurozone’s three main economies may also cheer officials, while central banks in Sweden and Mexico are likely to keep rates on hold.

Click here for what happened last week and below is our summary of what’s to come in the global economy.

asian

Asia begins with the release of minutes from the Bank of Japan’s policy board meeting this month.

The document takes on added interest after the authorities vowed to cut bond purchases, also saying investors would have to wait until the end of July before getting details on the scale of the reductions. Suggestions may appear on Monday.

Elsewhere, Bank of Australia Assistant Governor Christopher Kent speaks on Wednesday and Deputy Governor Andrew Hauser a day later, with the focus falling on any fresh hint of an escape after the governor said the board considered an increase at its meeting this month. .

They speak as data on Wednesday is expected to show Australian inflation rose in May.

Japan will see a key 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%, lifted by a rise in utility prices after the government cut energy subsidies.

Other nations publishing price updates include Malaysia, Singapore and Uzbekistan.

In other data, China’s industrial earnings on Thursday may reflect the benefits of an official push to upgrade equipment, and trade statistics are expected later in the week in New Zealand, Vietnam, Sri Lanka, Thailand and Hong Kong.

South Korea gets two indicators showing domestic demand with retail sales and consumer confidence.

Meanwhile, China and the European Union agreed to begin talks on the bloc’s plans to impose tariffs on electric vehicles imported from the Asian nation.

Europe, Middle East, Africa

The Riksbank’s decision on Thursday will be a highlight, with Swedish officials widely expected by economists to halt their easing cycle after an initial rate cut last month – foreshadowing a similar move the European Central Bank is expected to make stand by in July.

With policymakers growing more confident that Sweden is closer to taming inflation, they could ratify a path of two more cuts this year to bolster an economy that EU officials forecast to post one of the fastest expansions yet. weak across the block.

Here’s a quick look at other central bank decisions around the wider region:

• On Wednesday, Zimbabwe is expected to cut its key rate for the first time since it introduced a new currency, the ZiG, in April to fight deflation.
• Czech policymakers may cut borrowing costs by 25 or 50 basis points on Thursday, while not saying inflation has been defeated.
• On the same day, Turkey’s central bank is likely to keep its rate at 50% as it expects consumer price growth to slow from last month’s figure of 75%. Officials are confident that borrowing costs will begin to fall sharply in the second half.

In the eurozone, inflation data on three of its four largest economies will arrive at the end of the week. Reports are expected to show a slowdown in France and Spain, with price growth remaining weak in Italy.

The figures could provide encouragement to officials after last month’s setback, when inflation accelerated more than expected across the region. The ECB’s survey of consumer price expectations will also be released on Friday.

Other reports include Germany’s Ifo business confidence index on Monday, which is expected to show further gradual improvement in sentiment among companies in the region’s largest economy.

Policymakers scheduled to speak include Bank of France Governor Francois Villeroy de Galhau, whose economy is under intense scrutiny from investors ahead of upcoming legislative elections. Appearances by ECB chief economist Philip Lane and the heads of the German and Italian central banks are also on the calendar.

Meanwhile, in the UK, Bank of England officials – whose June 20 decision moved closer to a possible rate cut in August – 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.

Turning to Africa, Zambia’s growth statistics for the first three months of 2024, due on Thursday, may reveal some of the impact of a devastating drought. The dry spell is expected to reduce expansion to 2.5% this year from 5.2% in 2023.

Tomorrow, Kenyan inflation for June will give a further indication of the impact that floods and heavy rains have had on food prices there.

Latin America

Mexico’s central bank takes its final consumer price reading on Monday ahead of Thursday’s monetary policy decision, and the data is likely to leave Banco de Mexico completely unfazed. With inflation heating up again and moving further above target, Banxico is sure to stay on hold at 11% for a second meeting.

The central bank is the focus in Brazil, as it publishes the minutes of the June 18-19 monetary policy meeting on Tuesday, as well as the quarterly inflation report on Thursday. In between the two is the mid-month reading of the core consumer price index.

Keeping the base rate at 10.5% was no surprise, although the relatively soft tone of the communique after the decision raised some eyebrows.

Argentina’s economy is likely to fall into a technical recession in early 2024, with deep quarterly and year-over-year declines. Analysts polled by Bloomberg see a 5.4% year-over-year decline, the biggest decline since the pandemic.

While many of the region’s other major central banks’ inflation targets are either sidelined or increasingly tight, Colombia’s BanRep is expected to cut by half a point to 11.25% – 200 basis points from last year’s peak of 13.25% – and it’s on its way to the end. 2024 to 8.5%.