The Bureau of Labor Statistics will release its US consumer price index report on Tuesday, expected to show a slowdown in inflation. Economists surveyed by Reuters predict year-on-year headline inflation at 4.1% in May, down from April’s 4.9% and March’s 5%. This decline is likely due to weaker energy prices demonstrated through average regular petrol prices, which fell 2.1% month-over-month. If these figures are accurate, this may justify the Federal Reserve’s decision to pause interest rate increases in June, as the central bank seeks to increase rates while combating inflation.
Meanwhile, in the Eurozone, despite a falling economy and inflation, the European Central Bank is expected to raise interest rates by another 0.25% at its next meeting. Annual inflation has fallen from its October 2018 peak of 10.6% to 6.1% in May. However, rate-setters are still concerned that underlying inflation, which excludes volatile energy and food prices, may still be too high. While investors predict a rate increase this week and again in July, as accelerating wage growth continues to keep services inflation high, the ECB’s decision may depend on future core inflation rates.
Finally, UK economics data is expected to show an increase in wage growth that could further bolster higher interest rate expectations. Economist polls predict an acceleration to 6.1% in the three months ending in April, up from 5.8% in the previous quarter. This can be attributed to the April rise of 9.7% in the UK’s minimum wage, affecting approximately 1.6 million people. Nonetheless, analysts estimate that unemployment rose to 4% in the three months to April, from 3.9% in the previous quarter. A stronger rise in GDP, expected to be out on Wednesday, could help support the economy while also justifying further interest rate increases to combat rising inflation.
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