Is UK inflation still falling?

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Investors will be looking at UK inflation data on Wednesday as a guide to the path for interest rates this year.

Economists polled by Reuters forecast that annual inflation will ease to 3.1 per cent in March, down from 3.4 per cent in February and the lowest since mid-2021. Analysts expect core inflation, which strips out energy and food prices, to slow to 4.3 per cent from 4.5 per cent in the previous month.

That would leave UK inflation above the Bank of England’s 2 per cent target, which may help persuade the central bank not to make extensive rate cuts this year.

Last week traders pushed back their bets on when the BoE would first cut rates from June to August, after stronger-than-expected US inflation for a third month in a row.

Labour market data being released on Tuesday will also be closely scrutinised to assess the strength of wage growth, which is key for domestic price pressures. Hot wage growth contributed to keeping services inflation elevated at 6.1 per cent in February.

Economists polled by Reuters believe earnings growth will slow to 5.5 per cent in the three months to February from 5.6 per cent in the three months to January, offering some relief for policymakers. Valentina Romei

How fast is China’s economy growing?

China will publish its first-quarter economic performance on Tuesday, with analysts looking for further signs of a rebound from the tepid growth seen since it pulled back on its hardline zero-Covid policy.

Economists expect that gross domestic product will have grown 4.6 per cent year on year in the first three months of 2024, according to a consensus estimate from a poll by Reuters. That would be below the country’s target of around 5 per cent for the year. 

The readout comes at an important time for Beijing after disappointing trade data showed a 7.5 per cent year-on-year decline in exports in March, much worse than the 2.3 per cent drop forecast by Reuters.

The country’s latest inflation data was also weaker than expected, with the consumer price index rising just 0.1 per cent in March compared to the same month the previous year. The low CPI growth indicates weak domestic demand, a persistent problem for the country. However, there have been a few signs of reviving demand — for instance Chinese industrial activity, which jumped in January and February. 

Even so, some are doubtful China will be able to achieve its full-year growth target without an extensive package of stimulus measures from Beijing.

“Without bolder steps, we think growth will fall short of the official GDP growth target,” analysts at UBS wrote in a recent note, citing a lack of policy details and “positive surprises” during last month’s annual National People’s Congress, when Beijing announced the economic agenda for the year.

Rating agency Fitch has downgraded its outlook on China from “neutral” to “negative”, citing the country’s “property-reliant growth” as a source of increased uncertainty in its re-rating announcement. 

Fitch said Beijing’s fiscal policy was “increasingly likely to play an important role in supporting growth in the coming years, which could keep debt on a steady upward trend”.

China’s finance ministry said the agency “failed to effectively anticipate the positive role of fiscal policies in promoting economic growth”. William Sandlund

Are US consumers still spending?

US retail sales data for March, due out on Monday, will provide investors with another insight into the strength of the economy, after a sharp rethink on interest rate expectations this year.

Three months of higher-than-expected inflation and a jobs market that shows little sign of weakening have already stoked concerns that the US economy is too buoyant to allow many cuts in the near future.

Economists polled by Reuters expect Census Bureau figures to show that retail sales, which include spending on food and petrol, rose 0.3 per cent last month. That would mark a slowdown from the 0.6 per cent month-on-month increase in February.

The Federal Reserve will be watching closely. Signs of weakness among consumers at the low end of the income scale are beginning to emerge even as headline economic growth remains robust, according to ING’s chief international economist James Knightley, who expects retail sales to rise 0.3 per cent.

Weekly credit card numbers have been “subdued”, loan delinquency rates are on the up and data from San Francisco-based online restaurant-reservation service OpenTable “suggests restaurant dining has been weak”, he said.
 
He added that financial stress among consumers “is likely to get worse in the near term with inflation running hotter than income growth, especially for those on social security”.

In contrast, analysts at Bank of America expect a “strong” March retail sales report showing a 0.4 per cent increase in headline retail sales and a 0.7 per cent rise in the so-called core control group, which ignores spending on autos, gas, building materials and in restaurants.

Even so, BofA concludes that a recent set of weak credit and debit card data mean their forecasts may be too optimistic. George Steer