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Is US inflation still falling?
US inflation has significantly declined in the past year as a result of the Federal Reserve’s aggressive interest rate hikes, which have cooled demand. The upcoming inflation data will reveal whether this downward trend is continuing to slow.
The Bureau of Labor Statistics will release the latest consumer price data on Thursday. According to economists surveyed by Reuters, it is expected that headline inflation rose by 3.6% in September compared to the previous year. This would show a slight decrease from the August figure of 3.7%.
Barclays analysts anticipate that the marginal cooling in inflation will mainly be attributed to a slower increase in energy prices. Core inflation, which excludes the volatile food and energy sectors, is projected to remain steady at 0.3% month on month in September, matching the rate of August.
If there is a slowdown in inflation, it could strengthen market expectations that the Federal Reserve will maintain its interest rate target range at 5% to 5.25% during its next meeting in November.
However, the situation is further complicated by the unexpected surge in US non-farm payrolls reported last week.
Based on interest rate derivatives prices, LSEG data reveals that swaps traders currently estimate the chances of a quarter point increase by the Federal Reserve at the upcoming meeting to be slightly over 30%.
Barclays analysts suggest that if the CPI numbers align with their expectations, there is likely to be another 0.25 percentage point increase by the end of the year. They state, “The expected acceleration in the supercore measures of CPI in September, viewed alongside the strong activity data, and still-tight labour market conditions, would suggest that there is more work to be done to sustainably lower inflation towards the 2% target.”
Kate Duguid
Will the UK economy return to growth?
Following strikes and wet weather that dampened activity in July, the UK economy is forecasted to rebound and return to growth in August.
Economists surveyed by Reuters predict that UK gross domestic output will expand by 0.2% month on month in August, recovering from a 0.5% contraction in July.
Investors and policymakers will closely monitor these figures to assess the resilience of the economy in the face of high inflation and borrowing costs. While the Bank of England is expected to be near or at the peak of its interest rates, output and inflation data will be scrutinized to evaluate the need for further rate increases and their impact on demand.
Sandra Horsfield, an economist at Investec, believes that the expected rebound in August will be driven by the expansion of the services sector. She notes, “The absence of teachers’ strikes and fewer doctor strikes ought to have acted as a support.”
Horsfield adds that a negative quarter-on-quarter print may be avoided for the third quarter, but warns of the possibility of a mild and brief winter recession due to rising debt service costs affecting business investment and hiring, along with a less buoyant job market for households.
Revised quarterly UK gross domestic product data published by the Office for National Statistics last month revealed that Britain’s growth speed was similar to France, faster than Germany, but still below other G7 countries when compared to the fourth quarter of 2019, prior to the pandemic.
Valentina Romei
Will China continue its climb out of deflation?
This week, investors in China will focus on the latest inflation and trade readings.
Although the World Bank recently reduced its growth forecast for China to just 4.4% for the next year, recent data suggests that the country’s economy may have reached a bottom after several months of disappointing figures.
Bloomberg economists anticipate that China’s official consumer price index for September will show a year-on-year increase of 0.2%, following its emergence from deflation in August with a rise of 0.1%. Meanwhile, producer prices are expected to decline by 2.4% compared to the previous year, slightly less than the 3% drop in August.
ING analysts have even higher expectations, projecting that consumer inflation will exceed forecasts with a reading of 0.4%, attributing this to rising oil prices and the impact of government efforts to boost the economy.
However, the forthcoming trade data for September is likely to present a less positive outlook. It is anticipated that exports and imports will have decreased by 7.5% and 6% respectively.
Considering that Chinese stocks have already lagged behind their global counterparts this year, any disappointment in the data is expected to trigger further selling.
Hudson Lockett
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