Wednesday, January 19

US inflation rate is likely to skyrocket again: green week


US inflation likely hit the fastest in four decades, which helped explain a shift in the Federal Reserve’s approach to monetary policy, as well as increased consumer anxiety about the economy.

The widely followed consumer price index on Wednesday is forecast to rise 7.0% for the year through December and 0.4% from the previous month. The next day, another Labor Department report is expected to show prices paid to producers rose nearly 10% in 2021. Reports on retail sales and industrial production for December arrive on Friday.

Rising inflation underscores why US officials are preparing for a faster monetary policy normalization than previously anticipated. Added to the case is evidence of a tight labor market, which includes a rise in wages and a drop in unemployment in Friday’s data.

Fed watchers may have more clarity in the coming week on whether the takeoff in interest rates may come as early as March and when the central bank will start cutting its $ 8.8 trillion balance sheet.

President Jerome Powell testifies before the Senate Banking Committee on his nomination for a second four-year term on Tuesday. Two days later, Fed Governor Lael Brainard appears before the same panel at a confirmation hearing on her promotion to vice president. Other Fed officials who will speak are Loretta Mester, Esther George, Charles Evans and James Bullard.

What Bloomberg Economics Says:

“With the unemployment rate falling below the average FOMC participant’s estimate of the long-term neutral rate and wages growing rapidly, this jobs report will likely alleviate any lingering doubts from the more dovish FOMC members.”

–Anna Wong and Andrew Husby. For the full report, click here.

Elsewhere, inflation data may show a weakening of China’s price pressures, Germany will give an indication of its growth in the final quarter of 2021, and both South Korea and Romania are likely to continue tightening monetary policy.

Asia

Sri Lanka receives a visit from China’s Foreign Minister Wang Yi this weekend as the country ponders whether it might need to ask the International Monetary Fund or Beijing for help as its foreign exchange reserves are running low.

South Korea’s employment figures are ahead of Friday’s decision on Bank of Korea interest rates, and some economists are now predicting a back-to-back rise by Governor Lee Ju-Yeol.

China releases midweek price data that could offer further evidence that inflationary pressure has peaked there for now. On the contrary, Indian inflation is expected to pick up again.

China’s trade figures at the end of the week are set to show a new annual export record, as Beijing sticks to a Covid-zero strategy that keeps its factories open, taking advantage of the recovery in global demand. The Bank of Japan gives its assessment of the health of the country’s local economies before a policy meeting the following week.

Europe, Middle East, Africa

Joachim Nagel’s first full week as president of Germany’s Bundesbank will be marked by a virtual handover event on Tuesday with his predecessor, Jens Weidmann, Finance Minister Christian Lindner and the president of the European Central Bank, Christine Lagarde.

Meanwhile, on Friday, an official German estimate of full-year 2021 growth will provide the first indication in the Group of Seven of expansion for the fourth quarter, following news that industrial production there unexpectedly contracted in November. How that drop affected overall euro zone factory output will be seen in Wednesday’s data.

Friday will also be a highlight in the UK, where the monthly gross domestic product and industrial data for November will be released, probably showing a fourth consecutive increase.

Euro region inflation remains a hot topic after a surprise acceleration reported on Friday. Isabel Schnabel, a member of the ECB’s Executive Board, said on Saturday that the continent’s transition to green energy may mean that “inflation will stay higher for longer.”

Eastern Europe will be a hot spot for monetary policy action. Romania’s central bank is likely to raise interest rates on Monday, while decisions must also be made on Thursday in Serbia and Hungary.

Ghana’s figures to be released on Wednesday are expected to show inflation accelerating to 12.5% ​​in December, surpassing the upper limit of the central bank’s 6-10% target range for the fourth month. Still, officials may delay raising rates while they wait to see if the 100 basis point hike in November will halt inflation.

Turkey’s current account data on Tuesday is likely to show a shift to deficit in November in the absence of a significant boost from tourism. Turkey posted a surplus for three months before November thanks to a jump in trade and the services balance.

Latin America

Mexican industrial production figures for November, released Tuesday, may contribute to evidence that Latin America’s second largest economy is slipping into recession.

The December reading on Brazil’s consumer prices is expected to show that inflation has peaked and ended 2021 slightly below the central bank’s central forecast of 10.2%. Getting it back on target won’t happen until the third quarter of 2023 at the earliest, the bank projects.

The Mexican labor market has seen a rebound, although it remains below pre-pandemic levels. The current weakness in service employment is likely to weigh on the December formal jobs data reported on Wednesday. In Brazil, the services sector has also been struggling and November data due Thursday will likely show a slowdown in activity for the sixth month.

Look for Argentina’s consumer price report for December on Thursday to show a marginal moderation from the 51.2% pace in November. The 2022 inflation trajectory is largely due to the date of a new loan agreement with the IMF that sets targets on government spending and debt.

Inflation, rising interest rates and high household indebtedness have soured the sentiment of Brazilian consumers. Marginalized shoppers have many analysts looking for a fourth month of negative impressions on the retail sales data released on Friday.

© 2022 Bloomberg


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