Consumer prices in the US could show that the Fed has more work to do

(Bloomberg) — Prices for U.S. goods and services likely climbed last month at a pace that remains disheartening for consumers and Federal Reserve policymakers seeking more headway in their battle to curb inflation.

Most read by Bloomberg

January’s consumer price index is expected to rise 0.5% from the previous month on Tuesday, driven in part by rising gasoline costs. That would mark the biggest gain in three months. Excluding fuel and food, so-called core prices, which better reflect underlying inflation, are expected to rise by 0.4% for the second month.

Those gains are consistent with the Fed’s view that, while inflation is moderating from last year’s four-decade high, further interest rate hikes will be needed to ensure price pressures subside. Officials will also watch trends in the cost of basic services to assess the impact of a still tight labor market on inflation.

Core CPI is seen rising by 5.5% from a year ago, which would be the smallest annual gain since the end of 2021. The central bank’s target, based on a different inflation metric, is 2%.

Persistent price pressures explain why many Americans are gloomy about their personal finances. A Gallup poll released on Wednesday showed that 50% of respondents describe their personal financial situation as worse than a year ago, the highest share since 2009.

Read more: Half of Americans say they’re worse off, most since 2009: Gallup

The good news for consumers, as well as Fed Chair Jerome Powell and his colleagues, is that prices of basic goods have fallen in each of the last three months of 2022, the longest period since the start of the pandemic.

“With less of a drag on basic goods, core inflation is expected to climb higher in the next release,” Morgan Stanley economists led by Ellen Zentner wrote in a report. “But given that commodity prices aren’t rising significantly from here, price pressures should remain below their summer and fall peaks.”

What Bloomberg Economics says:

“We expect January’s monthly change in the CPI to ease the three-month trend of disinflation. A rise in gasoline prices, slowing goods inflation and still robust increases in services prices should boost both the mainstream and mainstream press. This should reinforce market bets that the Fed will have to hike rates higher than currently expected or indicated in the December dot plot.

—Anna Wong, Eliza Winger and Niraj Shah, economists. For a full analysis, click here

The adjustment in services prices was slower, but there were signs of moderation in the fourth quarter. Powell argued that lower wage pressure is part of the response to cooling inflation in basic services, excluding housing.

Among other US economic reports in the coming week, the government is to release data on January retail sales and industrial production. Figures showing a healthy recovery in auto purchases likely helped boost overall retail sales which point to a resilient consumer spending. Factory production probably also rebounded.

Regional Fed bank chairs to speak this week include Lorie Logan, Patrick Harker, John Williams, James Bullard, Loretta Mester and Thomas Barkin.

Elsewhere, weakening UK inflation, forecasts from the European Commission and the appointment of the next head of Japan’s central bank may attract attention. With just a handful of rate decisions, Indonesian officials are likely to be on the back foot.

Click here for what happened last week and below is our summary of what’s coming into the global economy.


The Japanese government will officially nominate Kazuo Ueda as its choice for Bank of Japan governor on Tuesday after media reports indicated that Deputy Governor Masayoshi Amamiya, the deputy governor, had turned down the job.

Gross domestic product data for the latest quarter is likely to show that the Japanese economy has recovered from a contraction, largely helped by improving trading conditions as the yen rises.

In China, the central bank is likely to keep one of its key rates unchanged on Wednesday, injecting more funds into the financial system to ease a liquidity crunch.

Unemployment data in South Korea will offer the latest sign of how higher borrowing costs are affecting the economy as Governor Rhee Chang-yong prepares for a meeting later this month amid consensus for a stay decision .

Australia is also to release jobs data which could provide insight into whether the central bank should act on its warning of possible further hikes. Governor Philip Lowe testified in parliament on Friday amid chatter about his prospects for remaining as head of the Reserve Bank of Australia after his seven-year term.

Singapore will report GDP one day before announcing this year’s budget plan on Tuesday.

Indonesia and the Philippines are expected to hold rate meetings on Thursday, with the former seen at the end of hikes, while a surprise rise in inflation in the latter could add pressure on policymakers to extend their most aggressive tightening cycle in two decades .

Europe, Middle East, Africa

It’s a pivotal week for the Bank of England as it assesses whether it can soon end its most aggressive tightening cycle in three decades.

Inflation in the UK – currently at 10.5% – is set to slow for the third consecutive month according to January data on Wednesday.

Officials will look equally closely at the monthly jobs report released a day earlier: Wages are rising at the fastest pace outside the pandemic, and some economists expect the fourth quarter to accelerate further.

BOE watchers will also be watching the job vacancies and unemployment numbers for any other signs of labor market easing and may focus on remarks from its chief economist, Huw Pill, on Thursday. Markets are heading for a quarter point rate hike at the March BOE meeting, with the hike cycle set to end by August.

In the eurozone, meanwhile, the highlight could come on Monday with the European Commission’s quarterly forecasts. Data in the region will be relatively sparse, with a second reading of GDP on Tuesday and industrial production the following day among the main attractions.

Among the European Central Bank officials scheduled to speak on Thursday is chief economist Philip Lane, as well as the governors of Portugal, Germany and France scattered throughout the week.

In Switzerland, which has experienced the OECD’s weakest consumer price shock so far, Monday’s data may show inflation is back above 3% in January.

Looking east, Romania’s central bank governor Mugur Isarescu presents new inflation forecasts on Tuesday and GDP data on the same day in Hungary should confirm that the economy has entered a recession in the second half of 2022.

Going south, the Bank of Zambia’s Monetary Policy Committee will likely raise its key rate for the first time in more than a year to support a weakening local currency that is putting upward pressure on inflation.

Slow progress in talks to restructure Zambia’s $12.8 billion in external loans has fueled a 13% depreciation of the kwacha against the dollar since the last MPC meeting on Nov. 23.

Also on Wednesday, Namibian rate regulators are expected to follow neighboring South Africa and raise borrowing costs by 25 basis points. The nation’s peg to the rand means that its rate decisions mostly follow those of the South African Reserve Bank.

Inflation in South Africa is expected to fall towards the 6% limit of the central bank’s target range.

Israeli consumer price data expected for that day should show continued acceleration in January, after hitting the highest levels since 2008 late last year. It is well above the central bank’s target range, despite a wave of rate hikes.

Latin America

After ending 2022 at a three-decade high, inflation in Argentina likely accelerated again to a few percentage points of 100% in January, just above local economists’ forecasts for the end of 2023.

Uruguay’s central bank will likely join peers in Brazil, Chile, Peru and Paraguay in opting to keep its rate unchanged this week. Twelve consecutive hikes have taken it to 11.5% and inflation is clearly easing, although still above the central bank’s 3% to 6% target.

Both Brazil and Peru report proxy GDP data for December. Of the two, the latter’s performance is expected to be slightly better despite violent nationwide protests over the ouster and arrest of leftist President Pedro Castillo earlier this month. For 2023, analysts see below average to poor growth for each.

A batch of data out of Colombia in the coming week should show that the economy’s spectacular rebound from the pandemic shock is rapidly losing momentum. Retail sales, manufacturing output and industrial production data for December are likely to be well below 2022 highs as double-digit inflation and rates begin to cool demand.

Full-year and October-December manufacturing data may show some fraying on margins as the economy hit year-end headwinds, but Colombia’s 2022 and fourth-quarter GDP results should still set the standard for outputs. major economies of the region.

–With assistance from Andrea Dudik, Robert Jameson, Tom Rees, Paul Richardson and Malcolm Scott.

Most Read by Bloomberg Businessweek

©2023 Bloomberg LP

Leave a Reply

Your email address will not be published. Required fields are marked *