(Bloomberg) — U.S. inflation is likely to moderate at the end of the third quarter, reassuring the Federal Reserve as it shifts its policy focus more toward protecting the labor market.
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The consumer price index rose by 0.1% in September, the smallest increase in three months. Compared to a year earlier, the CPI likely rose 2.3%, the sixth straight slowdown and the tamest since early 2021. The Bureau of Labor Statistics will release its CPI report on Thursday.
The indicator excluding volatile food and energy categories, which provides a better picture of underlying inflation, is expected to rise 0.2% from a month earlier and 3.2% from September 2023.
In the wake of surprisingly strong job growth for September reported on Friday, the gradual slowdown in inflation suggests policymakers will opt for a smaller rate cut at their next meeting on November 6-7.
Fed Chairman Jerome Powell has said officials’ projections alongside their September interest rate decision point to a quarter-point rate cut at the last two meetings of the year.
The CPI and the producer price index are used as benchmarks for the Fed’s preferred inflation measure, the personal consumer expenditures price index, which will be released later this month.
What Bloomberg Economics says:
“We expect a moderate CPI in September, but a more robust core value. As mapped to PCE inflation – the Fed’s preferred price gauge – core inflation likely grew at a pace consistent with the 2% target. Overall, we do not think the report will add much to the FOMC’s confidence that inflation is on a sustained downward trend.”
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For a full analysis, click here
Friday’s report on producer prices – a gauge of the inflationary pressures companies face – is also expected to show more subdued inflation. On the same day, the University of Michigan releases its preliminary consumer confidence index for October. The Fed will also release the minutes of the central bank’s September meeting on Wednesday.
Neel Kashkari, Alberto Musalem, Adriana Kugler, Raphael Bostic and Lorie Logan are among a series of Fed officials scheduled to speak in the coming week.
In Canada, officials will release the final jobs report before the Bank of Canada’s next rate decision, a crucial input for Governor Tiff Macklem, who expects further easing in the labor market. The central bank will also publish surveys on business and consumer expectations of economic growth and inflation.
Elsewhere, central banks from New Zealand to South Korea could cut rates, France will announce its budget and the European Central Bank will release minutes from its September policy meeting.
Click here for what happened last week, and below is our summary of what’s going to happen in the global economy.
Asia
It is an important week for monetary policy in Asia, with two central banks likely to cut interest rates and another bank already one step closer to doing so.
The Reserve Bank of New Zealand is expected to follow August interest rates into an easing cycle by cutting rates by half a percentage point to 4.75% at Wednesday’s board meeting, as weak wage data fuels labor market concerns.
The Bank of Korea is likely to cut its benchmark by a quarter point on Friday after inflation slowed to the slowest pace in more than three years, with the decision depending on whether housing market conditions have cooled sufficiently.
The Reserve Bank of India is keeping the repo rate and cash reserve ratio steady, while many economists are eyeing a quarter-point cut in the repo rate by year-end. And Kazakhstan’s central bank will decide on Friday whether to resume its easing campaign.
On Tuesday, the Reserve Bank of Australia will release minutes from its September meeting that could shed light on the deliberations that led to its aggressive stance, and the RBA’s No. 2, Andrew Hauser, will speak the same day.
Japan has wage statistics and household spending data, both of which are important for the newly installed government ahead of the general election at the end of the month.
Singapore becomes the first Asian country to report third-quarter gross domestic product – sometime between Thursday and Monday – with the consensus estimate predicting an acceleration in growth year on year.
Consumer inflation data comes from Thailand and Taiwan, while the Philippines and Taiwan publish trade figures.
Europe, Middle East, Africa
Germany’s manufacturing issues will take center stage with the release of factory orders on Monday and industrial production on Tuesday, followed by government economic forecasts on Wednesday.
Officials are about to give up hope of any expansion this year, according to people familiar with the matter.
In France, Prime Minister Michel Barnier’s government will present its 2025 budget law on Thursday, at a time when the country is struggling to contain its budget deficit. Fitch Ratings has scheduled the possible publication of a rating on the country for Friday after market close.
For the European Central Bank, Wednesday is the last day on which officials can speak publicly about monetary policy before a blackout period ahead of the Oct. 17 decision, with a rate cut looking all but certain.
Chief economist Philip Lane, Bundesbank President Joachim Nagel and Bank of France Governor Francois Villeroy de Galhau will appear, among others. A report of the previous meeting will be published on Thursday, with possible indications for the upcoming verdict.
In the UK, Friday’s GDP data, in the wake of Bank of England Governor Andrew Bailey’s comments opening the door to more aggressive easing, will point to the health of the economy in August.
Two Riksbank officials are expected to speak after Sweden’s central bank made a third interest rate cut in September. Sweden’s monthly growth indicator will be published on Thursday.
Towards the south, authorities in Egypt will hope that inflation has resumed its slowdown in September, after a slight acceleration the month before. The latest reading was 26%, slightly below the central bank’s base rate of 27.25%.
Three central bank decisions are planned in the region:
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On Tuesday, the Kenyan monetary policy committee will cut its key interest rate by a quarter of a percentage point to 12.25% for the second time in a row. Inflation is expected to remain below the 5% target in the short term, after falling to a 12-year low in September.
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On Wednesday, Israeli officials are likely to leave their interest rates unchanged at 4.5%, even as similar countries’ easing cycles begin or continue. The war against Hamas in Gaza and escalating conflicts with Hezbollah and Iran are weighing on the shekel, which is near its lowest point in two months. The country’s credit rating was recently downgraded by Moody’s and S&P.
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The Serbian central bank will make its monthly decision on Thursday and may continue with monetary easing after a quarter-point cut in September.
Latin America
By the end of the week, third-quarter consumer price data for all five major inflation-targeting economies of Latin America will be in the books.
Lower figures can be expected in Chile, Colombia and Mexico, while the undeniable warming of the Brazilian economy and prices is likely to have continued into September. All four central banks aim for an inflation rate of 3%.
In Brazil, the August retail sales report, apart from the central bank’s expectations survey released on Monday, could show a slight cooling from what has been a solid set of 2024 figures.
The minutes of Banxico’s September 26 meeting will be the highlight from Mexico. Policymakers sounded a dovish tone in their post-decision statement, following a second consecutive rate cut of 25 basis points to 10.5%.
In Peru, month-on-month deflation in September and below-target annual pressures of 1.78% are likely to give the green light to a third consecutive central bank rate cut from the current 5.25% .
After quickly curbing overheated consumer price increases, Argentine President Javier Milei’s fight against inflation appears to have stalled, with consecutive monthly pressures of almost 4%. Economists polled by the central bank expect a modest slowdown under the current policy mix.
–With help from Robert Jameson, Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek and Paul Wallace.
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