US data will take investors’ attention this week when the Fed’s preferred gauge of inflation, core personal consumption expenditures (PCE), is released on Thursday.
PCE inflation differs from the traditional measure of inflation, the consumer price index (CPI), by including a wider scope of data. CPI uses data from household surveys, while PCE uses data from suppliers, non-profits and the country’s GDP data.
Headline PCE came in at 2.6 per cent in December, unchanged from the month before while core PCE, the Fed’s favoured metric, fell to 2.9 per cent from 3.2 per cent previously.
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In January, core PCE is expected to fall to 2.8 per cent, but this will obscure the anticipated 0.4 per cent monthly rise, up from 0.2 per cent in December.
The figures come after a surprisingly strong CPI reading for January. Prices rose 0.3 per cent month-on-month, bringing the annual rate of inflation to 3.1 per cent. This was ahead of the 2.9 per cent expected by economists.
Persistent inflationary pressures are fuelling fears that the Fed will wait until the summer to start cutting interest rates.
“Based on comments from Fed officials this week, we now expect the Fed to wait until June to begin cutting interest rates,” economists at Capital Economics said. “Even if Fed officials weren’t trying to rule out rate cuts in the first half of this year, the incoming data has led markets strongly in that direction.”
In the UK there is a smattering of minor economic releases, including the BRC’s shop price index, the Bank of England’s lending data and Lloyds’ Business Barometer.
Sanjay Raja, UK economist at Deutsche Bank said shop price inflation will be the most important survey next week. “Further signs of disinflation will be carefully watched for by markets – particularly for food and core goods components, which have tracked fairly well with actual inflation,” he said.