US inflation should reassure a Fed focused on the labor market

(Bloomberg) — U.S. inflation likely moderated at the end of the third quarter, reassuring a Federal Reserve that is shifting policy more toward protecting the labor market.

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The consumer price index is expected to rise 0.1% in September, its smallest increase in three months. Compared to the previous year, the CPI likely rose 2.3%, the sixth consecutive slowdown and the most modest since the start of 2021. The Bureau of Labor Statistics will release its CPI report on Thursday.

The indicator excluding the volatile food and energy categories, which provides a better view of underlying inflation, is expected to rise 0.2% from the previous month and 3.2% from the previous month. to September 2023.

In the wake of surprisingly strong September job growth announced Friday, the gradual slowdown in inflation suggests policymakers will opt for a smaller interest rate cut at their next meeting on November 6 and 7.

Fed Chairman Jerome Powell said projections released by officials alongside their September rate decision pointed to quarter-point rate cuts at the final two meetings of the year.

The CPI and producer price index are used to inform the federal government's preferred inflation measure, the personal consumption expenditures price index, scheduled for release later this month.

What Bloomberg Economics says:

We expect a moderate overall CPI in September, but a more robust core number. Mapped in PCE inflation, the Fed's preferred price indicator, core inflation, has likely increased at a pace consistent with the 2% target. Overall, we don't think the report will do much to influence 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 inflationary pressures facing businesses, is also expected to show more moderate inflation. The same day, the University of Michigan releases its preliminary consumer sentiment index for October. The Fed will also release the minutes of the September central bank meeting on Wednesday.

Neel Kashkari, Alberto Musalem, Adriana Kugler, Raphael Bostic and Lorie Logan are among several Fed officials who will speak next week.

The story continues

In Canada, officials will release the final jobs report ahead of the Bank of Canada's next rate decision, a crucial input for Gov. Tiff Macklem, who expects further easing in the labor market. The central bank will also release surveys on business and consumer expectations for economic growth and inflation.

Elsewhere, central banks from New Zealand to South Korea could cut rates, France will unveil its budget and the European Central Bank will publish minutes of its September policy meeting.

Click here to find out what happened last week and below is our overview of what's happening in the global economy.

Asia

It's an important week for monetary policy in Asia, with two central banks likely to cut rates and another poised to do so.

The Reserve Bank of New Zealand is expected to continue its August shift towards an easing cycle by cutting rates by half a percentage point, to 4.75%, when the board meets on Wednesday, while weak payroll data fuels concerns in the labor market.

The Bank of Korea will likely cut its benchmark index by a quarter point on Friday after inflation slowed to its slowest pace in more than three years, with the decision depending on whether market conditions real estate have cooled sufficiently.

The Reserve Bank of India appears to be keeping its repo rate and cash reserve ratio steady, with many economists expecting a quarter-point reduction in the repo rate by the end of the year. And Kazakhstan's central bank will decide on Friday whether or not to resume its easing campaign.

On Tuesday, the Reserve Bank of Australia releases minutes of its September meeting that could shed light on the deliberations that led to its hawkish stance, and RBA No. 2 Andrew Hauser speaks the same day.

Japan is getting statistics on wages and household spending, both of which are of interest to the newly installed government ahead of a general election at the end of the month.

Singapore is expected to release its third-quarter gross domestic product between Thursday and Monday, with the consensus estimate expecting growth to accelerate year-on-year.

Data released on Sunday showed Vietnam's economic growth accelerated unexpectedly in the final quarter, boosted by manufacturing and exports before a super typhoon in September caused widespread damage and halted agricultural production. and industrial.

Consumer inflation data is due in Thailand and Taiwan, while the Philippines and Taiwan release trade figures.

Europe, Middle East, Africa

Germany's manufacturing sector's woes will be in focus with the release of factory orders on Monday and industrial production on Tuesday, followed by the government's economic forecast on Wednesday.

Officials are close to giving up hope of any expansion this year, according to people familiar with the matter.

In France, the government of Prime Minister Michel Barniers is expected to present its finance bill for 2025 on Thursday, at a time when the country is struggling to control its deficit. Fitch Ratings has scheduled the possible release of an assessment on the country after the market closes on Friday.

For the European Central Bank, Wednesday is the last day officials can speak publicly on monetary policy before a blackout period begins ahead of the Oct. 17 decision, when a rate cut appears almost certain .

Chief economist Philip Lane, Bundesbank President Joachim Nagel and Bank of France Governor François Villeroy de Galhau are among those expected. A report from the previous meeting will be published on Thursday, providing possible clues about the upcoming ruling.

Meanwhile, in the UK, following remarks from Bank of England Governor Andrew Bailey which opened the door to more aggressive easing measures, Friday's GDP data will reflect the health of the economy in August.

Two Riksbank officials are expected to speak after the Swedish central bank announced a third rate cut in September. Sweden's monthly growth indicator will be published on Thursday.

Towards the south, Egyptian authorities hope that inflation will resume its slowdown in September after a slight acceleration the previous month. The latest figure was 26%, slightly below the central bank's base rate of 27.25%.

Three central bank decisions are expected in the region:

On Tuesday, Kenya's monetary policy committee is expected to cut its policy rate for a second consecutive meeting by a quarter point, to 12.25%. Inflation is expected to remain below its 5% target in the near term after slowing to a 12-year low in September.

On Wednesday, Israeli officials are expected to keep their benchmark interest rate at 4.5%, even as their peers begin or continue easing cycles. The war against Hamas in Gaza and the escalation of conflicts with Hezbollah and Iran are weighing on the shekel, which is near its lowest level in two months. The country's credit rating was recently downgraded by Moody's and S&P.

Serbia's central bank will make its monthly decision on Thursday, considering whether to continue monetary easing after a quarter-point reduction in September.

Latin America

By the end of the week, third-quarter consumer price data for Latin America's five major inflation-targeting economies will be released.

We can expect weaker figures in Chile, Colombia and Mexico, while the unmistakable warming of Brazil's economy and prices likely continued in September. The four central banks are targeting inflation of 3%.

In Brazil, in addition to the survey of central bank expectations released on Monday, the August retail sales report could show a slight slowdown compared to a set of dynamic figures for 2024.

The minutes of the Banxicos meeting on September 26 will be the highlight of Mexico. Policymakers struck a dovish tone in their post-decision forward-looking statements after a second straight rate cut of 25 basis points to 10.5%.

In Peru, September's monthly deflation and an annual figure below the 1.78% target will likely green light a third straight cut in central bank rates from the current 5.25%.

After quickly controlling overheating consumer price increases, Argentine President Javier Mileis' fight against inflation appears to have stalled, with successive monthly figures close to 4%. Economists surveyed by the central bank expect a slight slowdown under the current policy mix.

–With assistance from Robert Jameson, Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek and Paul Wallace.

(Updates with Vietnam in Asia section)

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