Is US inflation falling again?

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US inflation is expected to have slowed last month, resuming a downtrend that could encourage bets that the Federal Reserve will lower interest rates in the spring.

Economists polled by Reuters are forecasting an annual consumer price rise of 3 per cent in January, down from December’s figure of 3.3 per cent, when official data are published on Tuesday. Core inflation, which strips out the volatile food and energy sectors, is expected to be 3.8 per cent, down from 3.9 per cent a month earlier.

The data will come after Fed chair Jay Powell said he was looking for more progress on inflation before considering rate cuts. His comments on CBS news programme 60 Minutes in effect killed expectations of interest-rate cut in March. But futures markets are pricing in a roughly 75 per cent chance of a May reduction, and progress on inflation could bolster those odds.

Investors expect four or five rate cuts in total this year, compared with Powell’s prediction of three.

December’s CPI figures showed inflation accelerating, so a moderation in January would be welcome news for the Fed. It would also narrow the gap between CPI and the central bank’s preferred inflation metric, the core personal consumption expenditures price index.

While core CPI inflation sped up in December, core PCE finally fell below 3 per cent for the first time in nearly three years. Kate Duguid

Will UK inflation tick up again?

An unexpected rise in UK inflation rocked financial markets last month. Investors will be closely watching the latest figures this week as they try to figure out how quickly the Bank of England is likely to lower interest rates this year.

Wednesday’s data is expected to show a further increase, with economists polled by Reuters forecasting a 4.2 per cent rise in consumer prices in the year to January, up from 4 per cent the month before.

That is in line with BoE projections for price growth to accelerate in January before falling below 2 per cent in the spring.

While the rise could be partly explained by the raising of Ofgem’s cap on energy prices, any sign that broader inflationary pressures are persisting — particularly in the services sector — could further undermine market expectations of a series of interest rate cuts this year.

Markets are pricing the first quarter-point reduction in June or August, followed by two more later in the year, which would take the BoE’s benchmark rate to 4.5 per cent from the current level of 5.25 per cent.

Deutsche Bank economist Sanjay Raja expects headline inflation to increase, with services inflation inching higher to 6.6 per cent in January from 6.4 per cent in December but warned that “given volatile moves in catering, travel, and package holidays in general, we could see services prices come in a little stronger than our baseline projections”.

Economists polled by Reuters also forecast that data released on Thursday will show UK economic growth contracted by 0.1 per cent in the three months to December.

Samuel Tombs, economist at Pantheon Macroeconomics, said the BoE’s Monetary Policy Committee is much more focused on the labour market and inflation than on the current level of economic output. This means “the recession news likely won’t move the dial at the MPC’s next meeting in late March”, he added. Valentina Romei

Will Europe’s industrial slump continue?

European factories ended last year with a whimper. This is expected to be the main message when industrial production data for the eurozone in December is published by Eurostat on Wednesday.

The figures are set to show industrial production across the bloc fell for the fourth consecutive month, dropping 0.4 per cent from November, according to economists’ forecasts in a Reuters poll.

The decline would mean eurozone factory output fell more than 4 per cent from a year earlier — underlining how the sector continues to suffer from high energy costs and weak global demand, contributing to the overall stagnation of the region’s economy.

But the figures mask diverging performances between countries. The sector is being dragged down by weakness in Germany, where factory output fell 1.6 per cent in December.

There was also a monthly decline of 0.3 per cent in Spain. But other major eurozone economies reported increasing factory output in December, which rose 1.1 per cent in both France and Italy from the previous month.

The outlook remains grim for this year, according to Morgan Ansell, an economist at consultancy Oxford Economics. “The impact of monetary tightening and slowing demand as well as inventory destocking has taken a toll,” Ansell said, predicting eurozone industrial output would fall a further 0.5 per cent this year before returning to growth in 2025. Martin Arnold