The Fed’s preferred gauge of core inflation is seen cooling

(Bloomberg) — The Federal Reserve’s front-line gauge of inflation is poised to show modest relief from stubborn price pressures, proving central bankers’ prudence about the timing of interest rate cuts.

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Economists expect the personal consumption expenditure price index minus food and energy – due on Friday – to rise 0.2% in April. That would mark the smallest advance so far this year for the measure, which provides a better picture of core inflation.

The overall PCE price index probably rose 0.3% for a third month, according to the median projection in a Bloomberg survey. The increases this year contrast with relatively flat readings in the final three months of 2023, underscoring uneven progress for the Fed in its inflation fight.

Fed Chairman Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a steady path to their 2% target before they cut the key interest rate, which has been at its highest level since two decades since July.

The PCE price measure is seen rising 2.7% on an annual basis, while the core metric is expected at 2.8% – both in line with last month’s levels.

Officials earlier this month were united in wanting to keep interest rates higher for longer, and “many” questioned whether policy was restrictive enough to bring inflation down to their target, according to minutes of their meeting. last.

Read more: Minutes show officials rallying around higher rates for longer

The latest inflation figures will be accompanied by personal expenditure and income figures. While demand grew at a solid pace in the first quarter, the data will inform utility spending after flat retail sales in April reported earlier.

What Bloomberg Economics Says:

“The report is likely to give some encouraging signs that the disinflation process has not completely stalled. With income growth slowing in a cooling labor market, consumers are gradually cracking down, which should provide a sustained disinflationary impulse into the rest of the year. However, with upward price pressures still in the pipeline, inflation is likely to moderate only very gradually this year.”

—Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For the full analysis, click here

Other data for the week includes revised first-quarter gross domestic product on Thursday. Economists predict that growth may have cooled from the government’s initial estimate. The Fed on Wednesday will release its Beige Book summary of economic conditions across the country.

Among the US central bankers speaking during the shortened holiday week are John Williams, Lisa Cook, Neel Kashkari and Lorie Logan.

Looking north, Canada will release gross domestic product data for the first quarter. Declining monthly momentum in March and weak domestic demand are likely to keep a June rate cut in play for the central bank.

Elsewhere, a possible pick-up in eurozone inflation, Chinese industrial data and PMI numbers, and price reports from Brazil will be among the highlights.

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

asian

China’s manufacturing sector is in the spotlight next week. Industrial data on Monday will show whether earnings rebounded in April after a sharp retreat in March dragged the pace of earnings for the first three months to 4.3%.

Continued deflation in output prices and weak domestic demand may keep profitability under pressure. China gets its official manufacturing PMI data on Friday, with the focus on whether the gauge stays above the 50 threshold that separates contraction from expansion for a third month in May.

Also on Friday, Japan’s industrial production growth was seen slowing as retail sales rose in April.

Tokyo consumer inflation may rise slightly in May, warning of gains for national figures.

Meanwhile, China, Japan and South Korea will hold their first trilateral summit since 2019 as Tokyo and Seoul have pressured Beijing to move closer to the US on issues ranging from security to semiconductor manufacturing. .

Consumer price growth in Australia is forecast to slow to 3.3%, still hot enough to keep the Reserve Bank of Australia on hold.

Vietnam also reports CPI data, along with industrial production, retail sales and trade during the week.

In central banking, Kazakhstan sets its key policy rate on Friday.

Europe, Middle East, Africa

In the eurozone, inflation probably accelerated in May to 2.5%, according to economists’ forecasts. A core gauge is expected to have stopped weakening for the first time since July, holding at 2.7%.

In line with broader eurozone data, national releases starting with Germany’s on Wednesday are expected to have gone the wrong way in three of the region’s four largest economies. Only Italy is seen to be experiencing slower price growth.

Such results hamper progress towards the ECB’s 2% target, but officials’ continued signals of a quarter-point rate cut on June 6 make it unlikely that a month of data will derail them. However, some policymakers are arguing against any rush for further relief.

“The probability is increasing that in 13 days we will see the first rate cut,” Bundesbank President Joachim Nagel, a policy hawk, said in an interview on Friday. “If there is a rate cut in June, we have to wait, and I believe we have to wait maybe until September.”

Other reports in the eurozone include Germany’s Ifo business confidence index on Monday, the ECB’s inflation expectations survey on Tuesday and economic confidence on Thursday.

ECB officials scheduled to speak next week include chief economist Philip Lane and the Dutch, French and Italian governors. A pre-trial blackout period begins on Thursday.

The Bank of England has already gone silent, canceling all campaign speeches and public statements from policymakers ahead of the UK general election on July 4.

Among other European central banks, a financial stability report from Sweden’s Riksbank on Wednesday and a speech in Seoul by Swiss National Bank President Thomas Jordan will be among the highlights.

Several monetary decisions are planned in the wider region:

Israel’s central bank is expected to keep its key rate steady at 4.5% on Monday, mainly to keep war-related inflationary pressures under control and provide support for the shekel. Governor Amir Yaron is wary of easing monetary policy and further widening the gap between borrowing costs in Israel and the US.
Ghana’s monetary authority is set to leave its key rate at 29% on Monday to tackle rising inflation and support its battered currency.
On Wednesday, Mozambican policymakers are poised to cut borrowing costs, with consumer price growth expected to remain in single digits for the rest of the year.
And on Thursday – a day after elections in which the ruling African National Congress risks losing its majority – South African monetary officials are expected to keep their key rate at 8.25%, with inflation yet to return to the midpoint of 4.5% of their target range.

Latin America

Brazil next week reports the mid-month reading of its core consumer price index along with the May reading of the broader measure of inflation.

The combination of Brazil’s tight labor market and weaker currency is likely to limit scope for further disinflation from current levels, with inflation already running close to year-end consensus forecasts.

The IPCA-15 price index fell below 4% last month after jumping above 5% in September – which came just two months after reaching 3.19%, below the central bank’s 2023 target.

Also in Brazil, the central bank on Monday posts its weekly survey of economists whose inflation expectations and interest rate forecasts are rising again, along with national unemployment, total outstanding loans and budget balances.

Chile posts six separate indicators for April, with the highlights being unemployment, retail sales, industrial production and copper production.

Mexico’s light schedule will be dominated by the release of the central bank’s quarterly inflation report, followed by a press conference hosted by Governor Victoria Rodriguez.

Banxico earlier this month marked down its inflation forecasts through the third quarter of 2025, while Wednesday’s report will reveal the bank’s revised GDP forecasts.

On Thursday, Mexico’s April labor market data will be released. The early consensus sees the unemployment rate rising from the record low of 2.28% posted in March.

–With assistance from Robert Jameson, Piotr Skolimowski, Monique Vanek and Laura Dhillon Kane.

(Updates with the Asia Summit section)

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