Is US inflation still falling? 

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Is US inflation still falling? 

US inflation has come down sharply over the past year as aggressive interest rate rises from the Federal Reserve cool demand. Inflation data this week will show if that trend is slowing.

The latest Bureau of Labor Statistics data on consumer prices, due on Thursday, is expected to show headline inflation rose 3.6 per cent in September year on year, according to economists surveyed by Reuters. That would mark a small decrease in the headline figure from 3.7 per cent in August.

Analysts at Barclays expect the slight cooling will largely be down to a slower increase in energy prices. Core inflation — which strips out the volatile food and energy sectors — is expected to be steady at 0.3 per cent month on month in September, the same rate as in August.

A slowdown could help cement market expectations that the Fed will hold its interest rate target rate range at 5 per cent to 5.25 per cent at its next meeting in November.

Complicating the picture is a surprise surge in US non-farm payrolls, announced last week.

Swaps traders currently put the chances of a quarter point increase by the Fed at that meeting at just over 30 per cent, according to LSEG data based on interest rate derivatives prices.

But Barclays analysts say that CPI numbers in line with their expectations would probably mean there will be another 0.25 percentage point increase by the end of the year.

“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 per cent target,” the bank’s analysts said. Kate Duguid

Will the UK economy return to growth?

The UK economy is expected to return to growth in August after strikes and wet weather depressed activity in July.

Economists polled by Reuters forecast that UK gross domestic output expanded 0.2 per cent in August month on month, rebounding from a 0.5 per cent contraction registered in the previous month.

The figures will be closely monitored by investors and policymakers to track the resilience of the economy against high inflation and borrowing costs. The Bank of England is expected to be close to or at the peak in interest rates, but output and inflation data will be scrutinised to judge the need for further interest rate increases and how this is reducing demand.

Sandra Horsfield, economist at Investec, said the expected August rebound will be driven by an expansion in the services sector. “The absence of teachers’ strikes and fewer doctor strikes ought to have acted as a support,” she said.

She added that a negative quarter-on-quarter print may well be avoided for the third quarter, “but a winter recession, if a mild and brief one, could well be around the corner as rising debt service costs make businesses more reticent to invest and hire and households encounter a less buoyant jobs market”.

Last month, the Office for National Statistics published revised quarterly UK gross domestic product data, showing that Britain was not the G7 laggard as previously estimated. Compared with the fourth quarter of 2019, before the pandemic, UK GDP output had grown at a similar speed to France, faster than Germany, but still below the other G7 countries. Valentina Romei

Will China continue its climb out of deflation?

Investors in China will be focusing their attention this week on the latest readings for inflation and trade.

Despite the World Bank recently cutting the country’s growth forecast to just 4.4 per cent for next year, recent data readings have suggested that China’s economy may have found a floor after months of disappointing data.

Economists polled by Bloomberg forecast that China’s official consumer price index for September will notch up a year-on-year rise of 0.2 per cent, after climbing out of deflation in August with a rise of 0.1 per cent. Producer prices are expected to drop 2.4 per cent from a year ago, compared with a fall of 3 per cent in August.

Analysts at ING have tipped consumer inflation to beat expectations with a reading of 0.4 per cent on the back of rising oil prices and “as the recent data suggests the government’s efforts to boost the economy have had some impact”.

But September trade data, also slated for release on Friday morning, is likely to paint a far less positive picture. Exports and imports are expected to have fallen 7.5 per cent and 6 per cent respectively.

With Chinese stocks already lagging behind global peers this year, a miss for either data set is likely to trigger further selling. Hudson Lockett