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Inflation data from the United States may prove to be a strong indicator that Federal Reserve policy makers are determined to increase interest rates by a significant amount later in the month.
According to a Bloomberg survey, the consumer price index, which is closely monitored, rose by nearly 9% in June compared to a year ago. This marks a new four-decade high. Comparing to May, the CPI has seen a 1.1% increase, which is the third consecutive month of an increase of at minimum 1%.
Fed officials have been persuaded to raise their benchmark rate 75bps for the second consecutive meeting on July 27, despite persistently high inflation. Recession concerns are increasing. However, there are signs that prices at the producer level are stabilizing, as commodities costs, including energy, retreat.
Even so, the inflation data are likely to draw heightened scrutiny globally after a faster-than-consensus result for May caused ructions in financial markets.
The US inflation data follow figures Friday showing stronger-than-expected job growth and an unemployment rate near a five-decade low, underscoring a tight labor market that’s helping to keep wage growth elevated.
Figures on producer prices, industrial production and consumer sentiment, as well as the Fed’s Beige Book, are also released in the coming week. Raphael Bostic, president of the regional Feds, and Thomas Barkin will speak separately about the economy.
Bloomberg Economics:
“After employment data showed the labor market remains rock-solid, surging gasoline prices will push June’s headline CPI to a fresh high. Even with growth slowing, the underlying shift toward services will prevent the economy from falling into a technical recession in the second quarter.”
Andrew Husby and Yuelena Shulyatyeva Click here to see the full analysis
Further north, in a prelude to the Fed’s decision, the Bank of Canada will increase its rate of hiking by 75 basis points, if investors are to believe.
The weak economic background is likely to be the focus of the Group of 20 finance ministers, central bankers and central bankers who will meet in Bali on Friday. Senior officials will be discussing the latest news on inflation, global risks and the war in Ukraine.
Global monetary tightening will continue. Policy makers in Canada, New Zealand, and South Korea could all announce rate increases of at least 50 basis point.
Click here for what happened last week and below is our wrap of what’s coming up in the global economy.
Asia
Wednesday’s meeting of the Bank of Korea and the Reserve Bank of New Zealand will see further rate increases in an effort to control inflation. Investors will be watching to see how the global leaders in monetary tightening communicate their next steps.
South Korea’s jobless data will come out the same day, while Australia’s employment report will be released Thursday, giving insight into the state of the economy in the second quarter.
Janet Yellen, US Treasury Secretary, will meet with Shunichi Suzuki (Japan Finance Minister) earlier in the week in preparation for the G-20 meetings in Indonesia.
China is poised for a record-breaking week of economic data, which could shape the outlook for monetary policy and fiscal policy in the second half of the year.
Trade data on Wednesday will give more clues about softening global demand, ahead of Friday’s GDP figures, which are under more scrutiny as Covid outbreaks persist.
Fiscal data for the week will provide information about the financial state of local governments, while credit figures will be closely monitored for signs that indicate improving household and business sentiment.
Europe, Middle East and Africa
European Central Bank policymakers will have until Wednesday, July 21, to voice their opinions in public before a predecision blackout begins. They’re preparing to start raising rates, and to unveil an accompanying crisis tool to mitigate the fallout on weaker euro members such as Italy.
Christine Lagarde, the President of the ECB will attend a meeting with euro-area finance Ministers at noon on Monday. There are no other appearances.
The temporary closing of the Nord Stream gas pipeline in Russia, which will be effective Monday, is likely to help them focus their thoughts. German officials fear that the 10 day shutdown for routine maintenance could be made permanent.
Among data due, euro-zone industrial production on Wednesday will probably signal slowing expansion as the second quarter progressed, while the state of the region’s worsening trade deficit — perhaps reflected in the euro’s drop to a two-decade low — will be revealed on Friday.
The UK’s gross domestic product is expected to barely increase in May following a drop in the previous month. These figures are due Wednesday.
That picture of anemic growth amid rampant inflation is confronting Bank of England Governor Andrew Bailey, who’ll deliver a speech on Tuesday. As the replacement process begins, the successor to Prime Minister Boris Johnson will be greeted with a sickly economy.
Consumer-price data from June in Europe will highlight the shock to the cost of living that is reverberating across the continent, though not evenly.
The Czech Republic’s inflation rate is already among the region’s highest, and it’s set to rise further, to above 17%. In Scandinavia, the inflation rate will be lower but not as high as in Czech Republic. Sweden’s price growth is likely to reach 8.3%, according to economists.
Further south, data from Ghana on Wednesday will likely show inflation at almost triple the 10% ceiling of the central bank’s target, a possible impetus to raise rates for a third time this year.
Nigerian data Friday will likely show an acceleration in inflation for the fifth consecutive month. The possibility of a significant increase in inflation could prompt policymakers to raise borrowing costs for the week ahead.
Also on Friday, Israeli data may show inflation remaining stubbornly above the government’s 1% to 3% target.
Latin America
Brazil’s weekly trade figures will show more severe export readings than usual. May retail sales figures could be stronger than the April better-than-expected results.
With its economy likely slowing into a second-half recession as rising interest rates and double-digit inflation bite, Chile’s central bank is in a tight place. Most analysts expect a ninth straight increase, pushing the key interest rate to 9.5%.
Mexico is experiencing a pick up in headwinds, including stubborn inflation, rising rates of interest and less buoyant sentiment. This could lead to a slowing down in manufacturing and retail figures in May and Juni.
Argentine inflation data due look to head higher from May’s 60.7%, which prompted the central bank to boost its key rate to 52%.
Peru has June unemployment, Lima the capital, and May economic activity. The latter declined for a third consecutive month in April. The economy is now at its lowest level since the Pandemic.
The May data from Colombia on manufacturing, industrial output, and retail sales should highlight why analysts have raised their 2022 GDP projections. Amid a host of challenges, its economy is seen leading growth among the region’s big economies this year.
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