U.S. inflation may have picked up slightly in July, but not enough for the Federal Reserve to abandon its widely expected interest rate cut next month.
Wednesday’s consumer price index is expected to rise 0.2% from June, both overall and as a so-called core measure that excludes food and energy. While every indicator accelerated from June, the annual indicator should continue to grow at its slowest pace since early 2021.
The recent easing of price pressures has boosted Fed officials’ confidence that they can start lowering borrowing costs while refocusing attention on the labor market, which is showing signs of a wider slowdown.
The July jobs report showed U.S. employers sharply scaled back hiring and the unemployment rate rose for a fourth straight month, triggering key recession indicators and leading to a sell-off in global stock markets.
If the CPI is in line with expectations, it would mean inflation remains on a downward trend, and economists believe inflation will pick up slightly after June’s unexpectedly low reading. They believe the reversal stems largely from so-called core services, which do not include housing – a key category of concern for policymakers. Some forecasters also pointed to upward risks to commodity prices due to rising transportation costs.
However, the long-awaited slowdown in housing costs that began in June should continue. This category accounts for about one-third of the overall CPI and is an important determinant of broader inflation trends.
The Producer Price Index, which expires the day before the Consumer Price Index is released, will be scrutinized for categories that reflect the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index.
Another report next week is expected to show a pickup in total retail sales in July, but sales should slow significantly once certain components are removed to drill down into the control group, which is used to calculate gross domestic product.
Other data on the agenda include updates on inflation expectations, small business confidence, industrial production and new home construction. Regional Fed Presidents Rafael Bostic, Alberto Moussalim, Patrick Harker and Austan Goolsby are scheduled to speak.
Looking north, housing starts data for July will reveal whether the Bank of Canada’s back-to-back interest rate cuts help spur investment in new construction. Canadian wholesale and manufacturing sales are expected to decline in June.
Elsewhere, key data such as wages and inflation in the UK, production and retail sales data in China, and possible decisions by Norway and New Zealand to keep interest rates unchanged are all highlights.
Asia
Data from China on Thursday are likely to show economic performance improved in July from June but was still largely faltering.
Industrial output growth may have accelerated to 5.5%, but the pace is still slow enough to drag down the year-to-date data slightly.
The same goes for retail sales, which are expected to grow 2.6%, with seven-month growth falling back to 3.5%. Fixed asset investment remains stable, and the decline in real estate investment is expected to slow down.
China’s credit growth may have slowed in July despite the People’s Bank of China lowering key interest rates and lowering prime lending rates.
Elsewhere, Japan’s second-quarter GDP is expected to rebound to 2.3% on an annualized basis, and Taiwan and Kazakhstan will also release second-quarter GDP data.
Australia is due to release wage price data, consumer confidence and the NAB business confidence survey on Tuesday.
India’s consumer inflation is expected to slow to below 4% in July, while industrial output growth is likely to slow in June. Trade statistics are from India and Indonesia.
Among central banks, the Reserve Bank of New Zealand is expected to keep the official cash rate at 5.5% at its meeting on Wednesday, but has not yet ruled out a rate cut. A day later, the governors of the Philippine central bank gathered together.
Europe, Middle East, Africa
The UK will be in focus, with the Bank of England releasing messages on the economy in four days and cutting interest rates for the first time in the same month and hinting at more cuts to come.
Tuesday’s data, likely to show a slowdown in wage growth, is likely to be among the most important, although the next day’s inflation data will also be watched for evidence of lingering pressures – particularly a possible rise in the services sector. Indicators, price growth remains above 5%.
Monthly GDP on Thursday is expected to show little growth in June, but second-quarter output released on the same day is likely to show a 0.6% expansion. On Friday, July retail sales were likely to show growth after falling last month.
Nordic countries are also likely to be in the spotlight, especially Norway. Norges Bank is expected to keep interest rates at 4.5% on Thursday, in line with a more aggressive stance taken in June, when officials effectively delayed monetary easing until 2025.
Core inflation has slowed faster than official forecasts this year, but energy-rich economies have also coped with the highest credit costs since 2008 better than expected; wage pressures remain high and the labor market has softened only slightly.
Against this backdrop, investors will be looking for any signs of concern about the crown, which has been the worst-performing G10 currency so far this year.
In Sweden, data on Wednesday will show whether underlying inflation in Northern Europe’s largest economy continued to slow in July. That would provide key evidence to policymakers, who are widely expected to continue monetary easing this month after signaling as many as three rate cuts in the second half of the year.
Denmark and the Czech Republic are also due to release inflation data on Monday, Poland is due to release second-quarter GDP data on Wednesday and Switzerland is due to release second-quarter GDP data on Thursday.
The Eurozone is set to experience a relatively quiet week. Germany’s ZEW investor confidence index released on Tuesday and Eurozone industrial production and Dutch GDP released on Wednesday are all major data. Most ECB officials are on vacation and much of southern Europe will be closed on Thursday.
Turning south, Zambia prepared on Wednesday to raise interest rates for a seventh consecutive time to curb double-digit inflation and support the kwacha.
On the same day, Namibia kept interest rates at 7.75%, in line with South Africa’s unchanged stance last month. The Namibian dollar is pegged to the rand, meaning monetary policy is often guided by the actions of the South African Reserve Bank.
Nigeria’s data on Thursday are likely to show inflation slowing for the first time in 19 months, helped by favorable annual comparisons and measures to reduce food costs, including a 180-day window for duty-free imports of wheat and corn.
Also on Thursday, forecasts showed Israel’s inflation rate could accelerate to 3.1% in July as the war in Gaza weighs on the economy and government spending surges. The result would be above the target range of 1% to 3% for the first time since November.
latin america
Argentina will release July inflation data, and economists surveyed by the central bank expect monthly inflation data to slow to 3.9% from 25.5% in December. Annual inflation likely slowed for a third straight month to about 263%.
Also from Argentina, the Economy Ministry will report its budget balance for July, now in its sixth consecutive month of surplus.
The central banks of Brazil, Colombia and Chile will release surveys of economists’ expectations for the week ahead. Chile also released a separate poll of traders, who correctly pointed to the Chilean central bank’s interest rate pause on July 31.
Uruguay’s new central bank governor Washington Ribeiro and his colleagues are likely to keep the key interest rate at 8.5%, after inflation edged up to 5.45% in July. Inflation has been within the bank’s target range of 3% to 6% over the past 14 months.
Brazil, Peru and Colombia will publish agency GDP data for June, while Colombia will also publish output data from April to June.
All three economies expanded faster than expected in April and May, bringing positive growth carryover throughout the second quarter.
Since the slump in mid-2023, the Colombian economy has subsequently recorded quarter-on-quarter growth of 1% and 1.1% respectively. Year-over-year forecasts range from 2.8% to 3.3%.
