Will US inflation continue to slow?

Will US inflation continue to slow?

US inflation has slowed consistently over the past year, although declines have moderated in recent months as price pressures in sectors like shelter — which includes rents — have remained high.

On Wednesday, the Bureau of Labor Statistics will release its latest consumer price index report, which is forecast to show that inflation rose at a slower pace in March than the previous month. Economists surveyed by Bloomberg are expecting the headline figure to have risen 5.2 per cent year-on-year, compared to 6 per cent in February.

Core CPI — which strips out the volatile food and energy sectors — is expected to have risen 5.6 per cent on the year, from 5.5 per cent in February. But the month-on-month core CPI figure is expected to have dropped from 0.5 per cent to 0.4 per cent.

Barclays analysts argue that the expected drop in headline inflation this month will be attributable to lower energy and food costs. The persistent strength in core inflation is likely to have been driven by shelter costs, even as the analysts predict disinflation in other core services, like transport and medical care.

Wednesday’s reading will be an essential piece of the Federal Reserve’s deliberations in May over whether to pause its historic campaign to raise interest rates. Kate Duguid

Has the UK economy stalled?

Data due on Thursday will confirm whether the UK economy stagnated in February — an outcome that economists predict as widespread strikes during the month limited the rebound from lower business price pressures and greater optimism about the broader outlook.

Economists polled by Reuters forecast that UK gross domestic output held steady between January and February, following a 0.3 per cent expansion in the previous month.

Business surveys, such as the purchasing manager indices, or PMI, pointed to an emerging recovery in business activity in February. It was boosted by lower input price growth, easing of supply chain disruption and waning recession risks.

Official data has already showed that retail sales expanded in February, while the construction sector is expected to have rebounded after heavy rainfall affected activity in January.

However, Samuel Tombs, chief economist at the consultancy Pantheon Macroeconomics, predicted that the strikes will result in a 3 percentage point hit to the month-on-month growth, reflecting a loss of output in education, defence and public administration.

He calculated that the stagnation in February should leave output on course to fall marginally between the first quarter of 2023 and the previous three months, which would follow a 0.1 per cent expansion in the previous quarter.

“A sustained upturn will not likely take hold until the third quarter, when prices should start to rise at a slower pace than wages,” said Tombs. This would be earlier than the latest forecast from the Bank of England, which expected economic growth to return only in the middle of next year. Valentina Romei

Has Chinese bank lending recovered?

China is set to release a series of high-profile economic data this week including readings on inflation, trade and renminbi lending — any one of which could unsettle markets.

First up is the official consumer price index for March slated for release on Tuesday, with economists polled by Bloomberg expecting annual consumer inflation to hold steady from the previous month at 1 per cent. Next, imports and exports are out on Thursday; economists expect each to notch declines of around 7 per cent on the year.

But the wild card will be a reading on new renminbi bank loans that the country’s central bank could release at any point during the coming week and which “should move markets”, according to Iris Pang, chief economist for Greater China at ING.

Economists at Goldman Sachs expect that after a sharp drop in February, bank lending will have surged to Rmb3.3tn in March, on the back of supportive policy from Beijing and strong growth in credit demand driven by the country’s economic reopening from pandemic restrictions.

They added that a cut to banks’ required level of reserves late last month “suggests policymakers would like to keep [their] monetary policy stance accommodative to facilitate growth recovery”.

Pang at ING expects lending to come in even higher at Rmb4tn due to both the reserve requirement cut and a “significant amount of liquidity injection” in the final two weeks of March. Hudson Lockett