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Market Awaits US CPI Data Amid Inflation and Job Market Dynamics


Benjamin Hughes

April 6, 2024 - 20:22 pm


Anticipation Grows as US CPI Data Set to Reveal Subtle Inflation Easing Amid Strong Job Market

In the wake of an unexpectedly robust job market report, the US consumer price index (CPI) data scheduled for release this week is anticipated to reflect a gradual deceleration in core inflation. These conditions support the Federal Reserve's measured stance on moderating interest rate adjustments.

A Cautious Approach Amid Signs of Cooling

The core CPI, which offers an insight into the underlying inflation by sidelining volatile items such as food and energy costs, is projected to exhibit a 0.3% uptick from the previous month, a slight deceleration from the 0.4% jump recorded in February. The Wednesday release is also poised to show a similar climb in the overall CPI.

Analysts are eyeing a 3.7% rise from a year earlier in the core price index, marking the most modest increase since April of the previous year. Despite being significantly lower than the 2022 peak of 6.6%, the journey towards more stable inflation has seen occasional uneven progress.

The inflation figures that have garnered comprehensive attention are arriving after the monthly jobs report, which for a consecutive fifth month surpassed expectations. While Fed officials have denoted a moderation in labor demands over the past year as a precursor to forthcoming rate cuts, the substantial rise of 303,000 in March payrolls provokes questions regarding the nature of such a cooldown, and its potential implications for inflation.

Fed policymakers have recently echoed a consistent message: the necessity to witness a clear indication that inflation is on the decline towards the set target before embarking on a path to reduce borrowing costs.

Inflation Trajectory in the Spotlight

Bloomberg Economics now turns the spotlight towards the inflation trajectory, considering it as a crucial ingredient in the Fed's response framework. They anticipate the March CPI report to showcase a modest deceleration in the core inflation's monthly pace to 0.3%, still aligning with the Fed's yearly core PCE inflation objective of 2.0%. An expected flutter around 3.0% in annual headline inflation up to the year's end, coupled with persistent disinflation in core metrics, should grant the Federal Reserve enough leeway to lower rates as soon as this summer.

Economists Anna Wong, Stuart Paul, Eliza Winger, and Estelle Ou provide a comprehensive analysis which can be found here click here.

Upcoming Fed Decision and Global Central Bank Moves

With the Federal Reserve's next assembly on April 30-May 1, a steady hold on rates is widely expected. Insight into their direction will likely emerge from the minutes of the March meeting due Wednesday, with New York Fed President John Williams's comments at next Thursday's event being particularly noteworthy. Meanwhile, the Bank of Canada is poised to keep its key policy rate at 5%, adjusting economic projections to account for a stronger-than-expected economic outset this year and the impacts of the Trudeau government's policy on temporary residents.

Globally, central banks from areas as diverse as New Zealand, the euro area, and Peru, are anticipated to maintain the status quo, though Israel's decision seems evenly split between a reduction and a pause. In an engaging twist, former Fed Chair Ben Bernanke is set to critique Bank of England forecasting errors on Friday.

The International Context: Asia and EMEA Focus

A multitude of Asian central banks, including those in the Philippines, New Zealand, Thailand, and South Korea, are expected to uphold their current policies. All eyes will be on any signs that hint at potential transitions to easing cycles. The RBNZ Governor Adrian Orr will likely deliver vital updates on the outlook for New Zealand's shaky economy come Wednesday.

Meanwhile, Europe presents its own narrative with the European Central Bank (ECB) likely maintaining rates heading into Thursday before anticipated easing begins in June. ECB President Christine Lagarde's pronouncements will be minutely examined for prognostications on future maneuvers, as some officials are already advocating for a consecutive rate action. On the other side, Hungary will disclose details from its recent policy meeting, where it cut the central rate but opted to reduce the scope of easing going forward.

Complementing the global economic perspective, the United Kingdom anticipates confirmation of growth through GDP figures, potentially sustaining a recovery following 2023's minor recession. Furthermore, a report from Bernanke serves to enhance the forecasting and communications processes within the Bank of England, responding to critiques of their initial response to the post-pandemic inflation crisis.

Latin American Inflation Struggles and Predictions

Central bankers, including Chile's Rosanna Costa, Mexico's Victoria Rodriguez, and Brazil's Roberto Campos Neto, can vouch for the complexities in taming inflation. Upcoming data may indicate Chilean consumer prices realigning with February's increase, with the central bank revising its 2024 inflation forecast upwards. Mexico's complex and prolonged disinflation journey is expected to see a reacceleration in the recent figures.

Brazil expects to report a reduction in consumer prices for the sixth consecutive month, entrenched within the central bank's tolerance band yet persisting above the target. Lastly, Argentina braces for its March inflation data that could reveal significant yearly growth, highlighting the challenges faced by the nation's economy and policymakers.

Peru might join the fray with a continued pause in interest rates at 6.25% during Thursday's meeting after March inflation exceeded all expectations.

The Economic Week Ahead

As we transition into the upcoming week, it's clear that central banks are striving for careful consideration and prudent economic management in the face of global financial headwinds and geopolitical uncertainties.

For a more detailed dive into the global economy's week ahead, comprehensive reports and analyses by Bloomberg Economics can be accessed, reflecting on the various forecasts and projections of central banks across continents. The upcoming central bank decisions, GDP figures, inflation data, and policy outcomes will undoubtedly have a far-reaching impact not only on the nations involved but also on the broader fabric of international economic relations and financial markets.

Conclusion: An Economy in Suspense

As experts scrutinize the forthcoming CPI data and central bank minutiae, the global economy cautiously awaits indicators of economic stability and progress. With predictions of inflation rates inching closer towards targeted benchmarks, the week ahead may prove to be a pivot point for economic policymakers worldwide. Stay tuned as the markets respond to these pivotal developments and strategists adjust their forecasts accordingly.

(Note: This news article incorporates content attributable to Bloomberg L.P. 2024, which provided assistance in the form of background information and data.)