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(Bloomberg) — As 2023 draws to a close, underlying price pressures in the U.S. will likely continue to recede, supporting the Federal Reserve’s optimism about the path of inflation.
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The consumer price index, which excludes food and fuel, which economists prefer as a better indicator of underlying inflation, is expected to rise 3.8% in December from a year ago.
This was the smallest annual increase since May 2021 and shows the progress the Fed has made in curbing inflation, which hit 2022 at its fastest pace in 40 years.
Inflation remains above the central bank’s target, but in the latest report from the December meeting of regulators, policymakers acknowledged that interest rates have likely peaked and are expected to remain above the central bank’s target this year. This shows that there is a willingness to lower borrowing costs.
At the same time, officials “reaffirmed that it is appropriate for policy to maintain a suppressive stance for some time until there is a clear and sustained decline in inflation,” according to meeting minutes.
Bloomberg Economics says:
“We expect core goods price deflation to continue to weigh on headline and core goods, but if companies are successful in reducing inventories, the sources of disinflation will subside in the coming months. Even if the pace of housing inflation slows, core CPI inflation is likely to remain above the Fed’s average inflation target of 2% through 2024.
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Wu, economists.Click here for a full preview
The government’s CPI report on Thursday will be followed by the Producer Price Index the following day. Overall indicators of inflation, excluding food and energy, are also seen to be declining over the years.
U.S. central bankers who will speak next week include New York Fed President John Williams and Atlanta Fed President Rafael Bostic.
Elsewhere, UK growth data, German industrial data and central bank decisions from South Korea to Peru will capture investors’ attention.
Click here to find out what happened last week. Below is a summary of what will happen next in the global economy.
Asia
The Asia-Pacific region will receive its first interest rate decision for 2024 at the Bank of Korea meeting on Thursday.
Economists do not expect a change in South Korea’s policy, instead focusing on whether officials will maintain their hawkish tendencies even as the Fed gradually begins to tilt in the opposite direction. .
The Bank of Japan has important statistics to analyze. On Tuesday, Tokyo’s consumer prices, a leading indicator of national trends, showed that inflation is expected to slow in December.
Also on that day, household spending probably fell again in November, but the next day’s data may show why: Salary increases still lag behind increases in the cost of living.
Inflation figures will be released in Australia on Wednesday and trading will take place on Thursday, while retail sales could recover with building approvals figures released on Tuesday.
China’s consumer and producer prices will be released on Friday, as will India’s consumer inflation and industrial production figures for December and November, respectively. Philippine trade statistics are expected to be released from Monday to Thursday.
Europe, Middle East, Africa
Manufacturing reports will get the most attention next week as the euro zone’s biggest economies release their industrial data.
Most importantly, Germany, the eurozone’s largest member state, will announce factory orders on Monday and production numbers on Tuesday.
Economists expect both measures to show some improvement in November from their three-year lows or near them in a quarter when most saw the country slip into recession.
For the eurozone as a whole, Monday’s business sentiment and Tuesday’s unemployment rate may be the most interesting.
The European Central Bank tends to start the year quietly, and 2024 will be no different. Those scheduled to attend include Bank of France Governor François Villeroy de Galhout on Tuesday, Deputy Governor Luis Desguindos and Board Member Isabel Schnabel on Wednesday, and ECB Chief Economist Philippe Lane on Friday, among others. Name only.
In the UK, Bank of England Governor Andrew Bailey and others gave parliamentary testimony on financial stability on Wednesday. Gross domestic product for November will be released in two days, with economists expecting a partial recovery from October’s decline.
Switzerland will release inflation data on Monday that may show a modest acceleration but remains comfortably below the 2% ceiling targeted by the Swiss National Bank for the seventh month in a row.
Three financial decisions are planned for Eastern Europe:
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Poland’s central bank on Wednesday is likely to extend a moratorium on interest rate cuts as inflation remains high following the government’s plans to increase fiscal spending.
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Serbian officials on Thursday may keep borrowing costs unchanged as they wait for inflation to return to an acceptable range.
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And on Friday, Romania’s central bank is expected to keep interest rates on hold at 7% as policymakers watch for a resurgence in inflation due to tax changes in the first half of 2024.
The latest figures for consumer price inflation in Hungary will be released on the same day, with economists expecting it to slow to 5.9%. This is still faster than all euro zone member countries except neighboring Slovakia.
Russia’s December inflation figures will be released on Friday, with the result likely to exceed 7%, significantly above the 4% that officials are targeting.
Turning to Africa, Ghana, the world’s second-largest cocoa producer, will probably report its first slowdown in inflation in five months on Wednesday, thanks in part to a relatively stable currency.
Investors will be closely monitoring Egyptian price data for December on the same day. Inflation has eased from record highs, but prices of daily necessities such as sugar have risen sharply. Fresh price pressures are on the horizon after price increases for key services from electricity to transport and as the country braces for the possibility of further currency devaluation.
latin america
Next week, five major Latin American countries will release their December consumer price data on Monday, with Chile leading the way. Economists expect the monthly deflation to push the full-year figure down to 4.4%, enough to sustain the central bank’s easing cycle.
Inflation in Mexico may have accelerated for the second month in a row on holiday spending, and hawkish banks may keep interest rates on hold for 11.25 percentage points longer than previously expected.
Colombian inflation could slow significantly by the end of 2023, falling nearly 400 basis points below the cycle’s peak, leading to a half-point rate cut at the central bank’s Jan. 31 meeting.
Economists polled by the central bank in Brazil on Thursday expect annual inflation to end 2023 at 4.46%, well above the target of 3.25%, but falling short in both 2021 and 2022. However, it is expected to remain within the target range of 1.75% to 4.75%.
In Argentina, following President Javier Millei’s pledge to tell the public the “unpleasant truth,” the government’s chief spokesperson said monthly inflation in December was likely to be around 30%, which would be higher than the annual inflation rate at the end of the year. He said this means the rate will be 222%. , up from 160% in November.
Rounding out the week, Peru’s finance minister expects inflation to be 2% at the end of 2024, compared to 3.24% in 2023, so Peru’s central bank will raise its policy rate to 6.5% at its Thursday meeting for the fifth time in a row. It is now almost certain that the price will be lowered.
–With assistance from Paul Abelsky, Brian Fowler, Robert Jameson, Laura Dillon Cain, Piotr Skolimovsky, and Monique Vanek.
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