Reducing core inflation will provide minimal relief to the Fed.


(Bloomberg) — Underlying U.S. inflation probably declined for the first time in six months in April, raising hopes that price pressures will begin to ease again after several surprises.

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The core consumer price index, which excludes food and fuel, rose 0.3% from a month earlier, after rising 0.4% in the first quarter. The Bureau of Labor Statistics will release its CPI report on Wednesday.

Compared to April 2023, the core CPI is projected to increase by 3.6%. Although this annual increase will be the smallest in three years, it is still running too fast to satisfy Federal Reserve policymakers, who want evidence that inflation is slowing steadily as they time interest rate cuts. Are arguing.

The overall CPI climbed 0.4%, possibly for the third straight month, as gasoline prices hit a six-month high. While prices of core goods are declining substantially, the cost of underlying services remains high and this explains why inflation proved stubborn in the first quarter.

Part of the difficulty the Fed has had in getting inflation down to its 2% target hinges on a resilient American consumer. Retail sales rose solidly in February and March, although economists' estimates for April show households taking a sigh of relief. These figures are also going to come on Wednesday.

On Tuesday, economists will analyze the government's report on producer prices to assess the impact of categories such as health care and portfolio management, which are included in the Fed's preferred inflation gauge – the personal consumption expenditure price index.

Other reports in the coming week include housing starts and industrial production for April.

Fed Chairman Jerome Powell is scheduled to speak at a foreign bankers event in Amsterdam on Tuesday. Regional Fed chairmen Loretta Mester of Cleveland and Raphael Bostic of Atlanta — who both vote on policy this year — also are scheduled to speak.

What Bloomberg Economics says:

“April's headline CPI report may appear encouraging – we expect it to decline from March – but we see a meaningful possibility that the month's headline PCE reading, a major concern for the Fed, may still be strong. “

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

Moving north, Canadian data on existing home sales for April will show if the spring market is heating up as buyers anticipate rate cuts. Housing starts, manufacturing and wholesale data will also be released.

Elsewhere, data on the strength of the Chinese and Japanese economies, wages data in the UK and the latest EU forecasts will keep investors busy in the coming days.

Click here for what happened over the past week and below for a breakdown of what's happening in the global economy.

Asia

China published a raft of data on Friday that are expected to show the second quarter had started on a solid note, with industrial output, retail sales and real estate investment rising year-on-year.

But the housing slowdown will continue to pose risks, with property investment seen falling by more than 9%.

Japan's economy is estimated to have shrunk in the first quarter due to a decline in private consumption and business investment, as well as the first negative contribution of net exports in a year. Those numbers are due on Wednesday.

According to Bloomberg Economics, growth is likely to bounce back in the second quarter due to an improvement in auto output.

On Friday, Malaysia reported GDP numbers.

Australian wage growth likely picked up slightly in the first quarter, with the unemployment rate forecast to rise to 3.9% in April.

Meanwhile, Australia's Treasurer Jim Chalmers told Bloomberg the budget would provide a big boost to the country's critical minerals industry, calling the lucrative market a “golden opportunity.” He is set to release his annual fiscal blueprint on Tuesday night.

Trade data is due in Indonesia and Singapore, and the central bank in the Philippines is expected to keep its benchmark rate at 6.5% on Thursday.

Europe, Middle East, Africa

The UK will be in the headlines with labor-market data that may encourage policymakers to ease inflation pressures.

Average weekly earnings, excluding bonuses, probably rose an annualized 5.9% in the first quarter, according to economists' average estimate.

Although it is still strong, the continued downward trend will please Bank of England officials, two of whom voted for an immediate reduction in borrowing costs on Thursday, while seven supported no changes.

In the wake of that decision, speeches from UK policymakers will draw attention. Among them, BOE's Chief Economist Hugh Pill is scheduled to speak on Tuesday.

In the euro zone, the calendar includes several European Central Bank officials. Speakers include the governors of the Netherlands, Germany, France and Italy. The ECB's semiannual financial stability review comes on Thursday.

Germany's ZEW investor confidence numbers on Tuesday will be a highlight in a quiet week for data. The final report on April euro-zone inflation will be published on Friday.

The Brussels-based European Commission will release an economic forecast for the region on Wednesday, including projections for growth, inflation, debt and deficit.

In Sweden, where the Riksbank cut rates on May 8 and promised more this year, details of that decision will be released on Wednesday, along with the latest inflation readings.

GDP figures for Norway and Poland will be published in the coming week.

Romania's central bank could cut its first rate in three years on Monday as inflation there slowly eases. The country's latest consumer-price and growth data are also due in the coming days.

Further east, Russia's inflation is likely to remain near 7.7%, based on weekly data from the Economy Ministry. Meanwhile, GDP data may show an acceleration in growth in the early months of 2024.

Bloomberg Economics estimates the Russian economy grew 5% year-on-year in the first quarter, up from 4.9% in the previous three months, due to war spending and consumer confidence.

Turning south, Israel's inflation slowed to perhaps 2.5%, evidence that the country's war against Hamas has had little impact on rising costs of living.

In Nigeria, consumer-price growth is estimated to have exceeded 34% in April, partly due to a three-fold increase in electricity prices for some urban consumers.

Elsewhere in Africa, two central bank decisions are forthcoming:

  • Zambia's policymakers on Wednesday will raise key interest rates for the sixth consecutive meeting to support the kwacha, which is trading at a record low against the dollar.

  • Angola's monetary authority may follow suit on Friday and raise its benchmark for the second consecutive time to tackle inflation, which is expected to rise due to fuel subsidy cuts.

Latin America

Colombia's economy may expand slightly in the first quarter due to stronger than expected output in February.

The central bank raised its 2024 growth forecast to 1.4% from 0.8%, while cutting next year's forecast to 3.2% from 3.5%.

Industrial production, manufacturing and retail sales data, which have gone 12 months without posting positive readings, are also on tap.

Meanwhile, Colombia's top monetary policy official warned that the central bank should be cautious that the pace of rate cuts could reverse the pace at which inflation is slowing.

Brazil's economy grew at the end of the year and remained solid in the first two months of 2024. February's GDP-proxy print was slightly better than expected due to minimum wage increases and government income support to low-income households.

Peru's GDP-proxy figures for March may lose some momentum after a larger-than-expected print in February.

The economy is projected to recover from the recession by 2023 but the damage has been done: The number of Peruvians living in extreme poverty reached an 11-year high last year.

In Uruguay, inflation of 3.68%, which is within the central bank's target range, could prompt policymakers to cut borrowing costs for the second consecutive meeting on Thursday from the current 8.5%.

Argentina President Javier Mellí's so-called shock therapy for the country's troubled economy is yielding results on the inflation front.

Analysts now see an April month-on-month print of 9%, down from the 13% forecast in January, with the year ending nearly 66 percentage points lower at 161.3%.

–With assistance from Robert Jameson, Monique Vanek, Piotr Skolimowski, Paul Wallace, Tony Halpin, and Brian Fowler.

(Updates with the Colombian central banker in the LATAM section)

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