Will US inflation continue to fall?

Will US inflation continue to fall?

Headline US inflation has been falling consistently since last summer, but economists and analysts believe progress may have stalled in April, as higher prices for core goods counteract cooling costs elsewhere.

The Bureau of Labor Statistics on Wednesday will release its latest US consumer price index report, which is expected to show headline consumer price inflation at an annual rate of 5 per cent in April, the same as in March, according to economists surveyed by Bloomberg.

The rate has been dropping every month since hitting 9.1 per cent in June last year. From the prior month, prices are expected to have risen 0.4 per cent.

Core CPI, which strips out the volatile food and energy sectors, is expected at 5.4 per cent year over year in April, down slightly from the prior month’s rate of 5.6 per cent. While price rises in core services — a category which includes costs related to rent and transportation — are expected to slow, pushing down the overall core figure, analysts at Barclays argued core goods inflation is expected to be higher, driven especially by the rising price of used cars.

The figures come after the Federal Reserve this week raised interest rates to a range of 5 per cent to 5.25 per cent, its tenth increase in 14 months. Kate Duguid

How much further will the Bank of England need to raise interest rates?

Since the Bank of England’s last rate-setting meeting in March, wage, house price and headline inflation data have all come in stronger than economists expected. With the UK trailing other major economies in its attempt to curb the pace of price rises, traders have upped their expectations of more rate increases to come.

Markets are pricing in a near certainty of a 0.25 percentage point rate rise next week to 4.5 per cent, echoing recent increases by the Federal Reserve and European Central Bank. Traders expect rates to peak at 4.75 per cent in September, having only priced in one more rise a month ago.

However, the Bank of England’s own messaging has been more prudent. In a speech in early March, governor Andrew Bailey signalled he thought financial markets were wrong to assume the bank would increase rates further.

Huw Pill, the bank’s chief economist, has said the BoE needs to exercise “judgment” and should not consider stronger activity to be necessarily inflationary because of the impact from falling gas prices.

Annual consumer price rises in the UK stayed in double digits in March at 10.1 per cent, the latest month for which data is available, while average earnings excluding bonuses rose 6.6 per cent year on year, according to the Office for National Statistics.

Craig Inches, a bond fund manager at Royal London Asset Management, said he would be “surprised” if the Bank of England does not lift rates by a quarter point given policymakers’ previous insistence that its moves will be “data dependent”. Mary McDougall

Is Germany’s manufacturing sector still growing?

Germany’s manufacturing sector is likely to have suffered a downturn in March, industrial production figures on Monday are expected to show, following a run of more positive news.

Economists polled by Reuters forecast output to have shrunk by 1 per cent between February and March, partially reversing expansion in the previous month.

In February, output in the eurozone’s manufacturing powerhouse rose to the highest level in more than two years, approaching its pre-pandemic figures. However, in March, industrial orders collapsed by 10.7 per cent, driven by a sharp drop in motor vehicles.

The figures indicated the rebound in German car production “is now reversing”, said Claus Vistesen, chief eurozone economist at Pantheon. He expects a sharp downturn in German manufacturing in the second quarter after the upturn in the first quarter, weighing on investment and inventory accumulation. “This will hold down GDP growth close to zero, even as consumers’ spending begins a gradual rebound,” he added.

Holger Schmieding, economist at Berenberg, also expects a fall in March German production data. However, he thinks that would be just a normal correction in volatile monthly data, while production will continue to be sustained by a record backlog of orders accumulated because of supply chain disruptions.

“Although they have started to reduce the backlog, the cushion remains comfortable,” he said.

French industrial production suffered a larger than expected 1.1 per cent fall between February and March, which reversed the 1.2 per cent rise in the previous month. Italy’s numbers will be published on Wednesday, with the eurozone industrial output figures out on May 15. Valentina Romei