Fed rate puzzle becomes final inflation, retail pawn

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(Bloomberg) — This week’s report is expected to show still-warm U.S. inflation and a backslide in retail sales, the last of the key economic data markers for Federal Reserve policymakers ahead of their upcoming meeting.

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The core consumer price index, which excludes food and energy and provides a better sense of underlying inflation, is forecast to rise 0.4% in February for a third straight month. The average estimate of economists polled by Bloomberg also calls for a 5.5% gain from a year ago.

Tuesday’s inflation data followed fresh data showing strong growth in February, but also signaled a further softening of wage gains that could help ease price pressures in the coming months.

While inflation has remained elevated as Fed policymakers consider increasing the pace of rate hikes, officials will also consider the impact of their year-long tightening campaign on the financial system.

The collapse of SVB Financial, a bank holding company, has roiled markets since Thursday, fueling concerns that higher interest rates are putting smaller lenders at risk.

Fed officials, who next meet March 21-22, will take another look at the extent of consumer appetite for goods. Resilient demand was underscored after a bounce in January, with shoppers forecast to pull back in Wednesday’s retail sales report for February.

Other US data this coming week include reports on producer prices, housing starts and industrial production for February, as well as a first read on March consumer sentiment.

Here’s what Bloomberg Economics says:

“With inflation running above target so far and spending showing such resilience, Fed Chair Jerome Powell is indicating a preference for taking the strong inflation and activity data at face value. To be sure, all The evidence doesn’t point in the same direction: There are some signs that the labor market is softening and wages are falling. Still, those are nuances, and a 50 basis-point hike would signal that the Fed believes That this is not the time for specifics.

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

Elsewhere, the European Central Bank will probably hike by half a point, reveal UK budget plans and the OECD will issue new forecasts for its 38 members and other major economies.

Click here for what happened last week and below for details on what else is coming in the global economy.

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Asia

China unexpectedly reappointed several top economic officials in a leadership reshuffle on Sunday, giving more certainty as Beijing reforms financial regulation and grapples with rising tensions with the US. Yi Gang, governor of the People’s Bank of China, will remain in office, as will the ministers of finance and commerce.

On Wednesday, new activity data will show the extent of the consumer and business rebound since the reopening, with early signs of a notable pickup in household spending. Kang Yi, head of the National Bureau of Statistics, said on Sunday that economic data for January and February, including industrial production and retail sales, showed a significant improvement.

Read more: China signals stability with surprise move to retain PBOC governor

Australia’s central bank chief Philip Lowe will be eyeing business and consumer sentiment data on Tuesday and the number on Thursday, assessing the latest data after this month’s rate hike. will likely jump at any sign of weakness in the economy that could bring the RBA closer to halting its rate hikes.

South Korea also released jobs data on Wednesday, where the labor market is still relatively resilient despite higher rates and a drop in external demand.

A sharp drop in growth is expected in New Zealand’s GDP figures this quarter following the worst cyclone damage in decades.

Japan’s largest union federation on Friday released preliminary data on this year’s spring wage talks. The data will give the Bank of Japan a take on the development in wage trends and whether it is strong enough to support inflation and justify withdrawal of stimulus.

Indonesia sets rates on Thursday.

Europe, Middle East, Africa

The ECB’s rate decision will be a major focus area. Half-point increases are certain, though will be watching more for signs of their intentions for May and beyond, guided by new quarterly forecasts.

The fastest rise in underlying inflation in euro-zone history is a point of contention as officials debate whether that measure or slowing headline price increases should be the primary focus of policy.

The Governing Council is also debating the strategy. Its announced approach to setting rates “by meeting” has been flouted by comments from some traders who suggest the hikes could continue into the second half of the year. The head of dovish Bank of Italy, Ignazio Visco, spoke last week to complain about such guidance in the future.

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For now, have started pricing in the possibility of the deposit rate reaching 4%, which would require a hike of 150 basis points from current levels. President Christine Lagarde’s comments at the post-decision press conference will be scrutinized for clues on that possibility.

Read more: ECB sees rates to peak at 3.75% as bond exit to quicken

In the wake of the decision, Denmark may also adjust the cost of borrowing. The central bank in Copenhagen usually matches its rate changes with its Frankfurt counterpart.

The week will be less eventful for euro-zone data, with industrial production on among the highlights.

will be the UK’s first traditional budget announcement since Liz Truss’ disastrous 49-day term as prime minister last year.

Since Chancellor of the Exchequer Jeremy Hunt took office at the end of his premiership, the country’s financial-market conditions have stabilized and the economy has so far avoided a prolonged recession. But a lingering blow to livability, widespread strikes and staff shortages remain a persistent concern.

With limited room for giveaways, he could choose to keep energy aid for households and a freeze in fuel charges in place, with measures to support child care and fund defense spending among the likely outcomes.

Meanwhile data on Tuesday will paint the backdrop for the Bank of England, with earnings and unemployment likely to hint at inflationary pressures in the economy.

Elsewhere in Europe, Swedish inflation will reveal the challenge faced by the Riksbank, which is struggling to get consumer prices under control, even as the economy could face the worst recession in the European Union this year. Romania and Serbia will also issue equivalent reports.

Looking south, Ghana’s inflation may have eased in February for a second straight month, but remains more than five times the central bank’s target range of 10%. This was followed by the purchasing managers’ index last month, indicating the first recovery in more than a year for the private sector as pricing pressure eased.

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Turkey’s current-account data in January will show one of the biggest monthly deficits on record due to energy and gold imports, while budget numbers on could reflect the first effects of February’s devastating earthquakes on central government finances.

Russia’s central bank is expected to hold a rate-setting meeting on Friday. Officials are adopting a more hawkish tone as inflation risks mount.

latin america

A set of January data from Colombia will show that the once roaring hot economy has slowed dramatically. Manufacturing, industrial output, retail sales and overall economic activity are declining and even negative amid double digit borrowing costs and inflation.

Mexico’s industrial production and manufacturing results for January may show a cooling from December, with early estimates suggesting the slowest readings since 2021.

A lighter week in Brazil offered economists’ expectations as well as the central bank’s survey of January unemployment data. With the unemployment rate at a seven-year low of 7.9%, there are signs of weakening in the labor market. January’s formal figures posted last week were stronger than expected, led by services and construction.

Lima unemployment results for February this week may show an increase of 8% from 7.1% a month earlier, following January’s big jump.

Peru’s January GDP-proxy data is likely to reflect pressure from nationwide protests and road blockades over the impeachment and arrest of former President Pedro Castillo.

And finally, having had an air of inevitability about it for a long time, Argentina’s February consumer price report will likely show annual inflation to exceed 100%, easily the highest among Group-of-20 economies. It’s a fast pace.

–With assistance from Andrew Atkinson, Andrea Dudik, Robert Jameson, Reid Landberg, Andrew Langley, Malcolm Scott, and Sylvia Vestal.

(Update with PBOC Governor in Asia segment)

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