Evelyn Reynolds

“By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” the European Central Bank’s chief Christine Lagarde said in a speech in Frankfurt.
The euro zone’s central bank has held rates since bringing them to a record high in September.
June has been flagged as a key month by numerous members of the ECB’s Governing Council, which votes on the path of rates.

Christine Lagarde, president of the European Central Bank, at the ECB And Its Watchers conference in Frankfurt, Germany, on March 20, 2024. 
Bloomberg | Bloomberg | Getty Images

European Central Bank chief Christine Lagarde on Wednesday reiterated that policymakers will consider bringing interest rates down in June, but sketched an uncertain path beyond that.
“By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” Lagarde said in a speech in Frankfurt.

The June meeting has been flagged as a potential turning point by many members of the ECB’s Governing Council — which votes on rate moves — as it will be the first gathering for which data from spring wage negotiations will be available. The ECB is on alert for potential knock-on inflationary effects from rising salaries.
Data available by June will also provide more insight into the path of underlying inflation and the direction of the labor market, according to Lagarde.
“If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, and assuming transmission remains strong, we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive,” she said.
“But thereafter, domestic price pressures will still be visible. We expect services inflation, for example, to remain elevated for most of this year. So, there will be a period ahead where we need to confirm on an ongoing basis that the incoming data supports our inflation outlook.”

Lagarde’s message overall was highly positive on the path on inflation, despite flagging geopolitical uncertainty and ongoing domestic price pressures. Euro zone inflation cooled to 2.6% in February, though the print for services remained stickier at 3.9%.

“Unlike in the earlier phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue,” Lagarde said, stressing confidence in the latest set of staff macroeconomic projections, which see inflation averaging 2.3% in 2024, 2% in 2025, and 1.9% in 2026.
The euro zone’s central bank has held rates steady since bringing them to a record high in September. Until its March meeting, the bank’s messaging was that it was too early to discuss when to start rate cuts. It next meets in April, then June.
Market attention is now moving to how many rate cuts the ECB is likely to carry out over the course of this year. Money markets indicate three cuts taking place by December, along with a potential fourth, according to Reuters data. More

The country’s central bank sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.
That’s pushed loan rates up higher and cut the sizes of some banks’ loan limits.
“Some banks have stopped lending. Some banks even recall their already granted loans. This is going to cause further liquidity squeeze,” one Istanbul-based economist told CNBC. 

A picture taken on August 14, 2018 shows the logo of Turkey’s Central Bank at the entrance of its headquarters in Ankara, Turkey.
ADEM ALTAN | AFP | Getty Images

Turkey’s central bank is opting for a different monetary tightening method as it grapples with climbing inflation, after previously signaling that its rate-hiking cycle was over.
The institution sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.

That’s pushed loan rates up higher and cut the sizes of some banks’ loan limits, with some lenders shrinking their commercial loan limits to 100,000 lira, or $3,100, Reuters reported Thursday.
“Some banks have stopped lending. Some banks even recall their already granted loans. This is going to cause further liquidity squeeze,” Arda Tunca, an Istanbul-based economist at PolitikYol, told CNBC. 
“If a central bank is willing to reduce the rate of inflation, liquidity conditions should be squeezed for sure, but the methodology is of utmost importance,” he said. “If the methodology is wrong, market expectations can’t be managed.”
Indeed, Turkish bank stocks dipped after the news Thursday. Economic data platform Emerging Market Watch posted on X, describing the central bank as taking “another tightening step via reserve requirements.”
Analysts at London-based firm Capital Economics made similar observations.

“In the past month, new quantitative and credit tightening tools have been announced,” the firm wrote in a research note. “Last week the CBRT tightened restrictions on lira loan growth, a move that would likely have a similar impact to an interest rate hike.” 
Meanwhile, Turkey in January recorded its first monthly drop in reserves since May 2023, according to balance of payments data released this week.
Turkish annual consumer price inflation soared to 67.07% in February. The strong figures have fueled concerns that Turkey’s central bank, which had indicated last month that its painful eight-month-long rate-hiking cycle was over, may have to return to tightening.
“Pressures on Turkish policymakers are building ahead of the local elections on 31st March as capital inflows have slowed and FX reserves are falling again,” Capital Economics wrote. “We doubt the central bank will hike interest rates next week, but we’re growing more convinced that at least one further hike will be delivered in Q2.”
— CNBC’s Dan Murphy contributed to this report. More

From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders that inflation it isn’t going away anytime soon.
The stubbornly high prices appeared to take their toll on consumer behavior and expectations.
On a policy level, that could mean the Fed may hold rates higher for longer than the market expects.

Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 
Scott Olson | Getty Images

From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders this week that inflation isn’t going away anytime soon.
Data across the board showed pressures increasing at a faster-than-expected pace, causing concern that inflation could be more durable than policymakers had anticipated.

The bad news began Monday when a New York Federal Reserve survey showed the consumer expectations over the longer term had accelerated in February. It continued Tuesday with news that consumer prices rose 3.2% from a year ago, and then culminated Thursday with a release indicating that pipeline pressures at the wholesale level also are heating up.
Those reports will provide a lot for the Fed to think about when it convenes Tuesday for a two-day policy meeting where it will decide on the current level of interest rates and offer an updated look on where it sees things heading longer term.
“If the data keep rolling in like this, it becomes increasingly difficult to justify a pre-emptive rate cut,” wrote Steven Blitz, chief U.S. economist at TS Lombard. Taken together, the numbers show “the great disinflation has stalled and looks to be reversing.”

CNBC reports on inflation

The latest jolt on inflation came Thursday when the Labor Department reported that the producer price index, a forward-looking measure of pipeline inflation at the wholesale level, showed a 0.6% increase in February. That was double the Dow Jones estimate and pushed the 12-month level up 1.6%, the biggest move since September 2023.
Earlier in the week, the department’s Bureau of Labor Statistics said the consumer price index, a widely followed gauge of goods and services costs in the marketplace, increased 0.4% on the month and 3.2% from a year ago, the latter number slightly higher than forecast.

While surging energy prices contributed substantially to the increase in both inflation figures, there also was evidence of broader pressures from items such as airline fares, used vehicles and beef.
In fact, at a time when the focus has shifted to services inflation, goods prices leaped 1.2% in the PPI reading, the biggest increase since August 2023.
“There continue to be signs in PPI data that the disinflation in goods prices is largely coming to an end,” Citigroup economist Veronica Clark wrote after the report’s release.
Taken together, the stubbornly high prices appear to have taken their toll on both consumer expectations and behavior. While substantially lower than its mid-2022 peak, inflation has proved resilient despite the Fed’s 11 rate hikes totaling 5.25 percentage points and its moves to cut its bond holdings by nearly $1.4 trillion.
The New York Fed survey showed that three- and five-year inflation expectations respectively moved up to 2.7% and 2.9%. While such surveys often can be especially sensitive to gas prices, this one showed energy expectations relatively constant and reflected doubt from consumers that the Fed will achieve its 2% mandate anytime soon.
On a policy level, that could mean the Fed may hold rates higher for longer than the market expects. Traders in the fed funds futures market earlier this year had been pricing in as many as seven cuts totaling 1.75 percentage points; that since has eased to three cuts.
Along with the surprisingly strong inflation data, consumers are showing signs of letting up on their massive shopping spree over the past few years. Retail sales increased 0.6%, but that was below the estimate and came after a downwardly revised pullback of 1.1% in January, according to numbers adjusted seasonally but not for inflation.
Over the past year, sales increased 1.5%, or 1.7 percentage points below the headline inflation rate and 2.3 points below the core rate that excludes food and energy.
Investors will get a look at how policymakers feel when the rate-setting Federal Open Market Committee convenes next week. The FOMC will release both its rate decision — there’s virtually no chance of a change in either direction — as well as its revised outlook for longer-term rates, gross domestic product, inflation and unemployment.
Blitz, the TS Lombard economist, said the Fed is correct to take a patient approach, after officials said in recent weeks that they need more evidence from the data before moving to cut rates.
“The Fed has time to watch and wait,” he said, adding that “odds of the next move being a hike [are] greater than zero.” More

 A customer shops for food at a grocery store on March 12, 2024 in San Rafael, California. 
Justin Sullivan | Getty Images News | Getty Images

Wholesale prices accelerated at a faster than expected pace in February, another reminder that inflation remains a troublesome issue for the U.S. economy.
The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.

Excluding food and energy, core PPI accelerated by 0.3%, compared to the estimate for a 0.2% increase. Another measure that also excludes trade services increased 0.4%, compared to the 0.6% gain in January.
On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023.
A busy morning for economic data also showed that retail sales rebounded, up 0.6% on the month according to Commerce Department data that is adjusted seasonally but not for inflation. The increase helped reverse a downwardly revised 1.1% slump in January but was still below the estimate for a 0.8% increase.
Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported.
The market focused on the PPI release, which comes two days after the consumer price index, which measures what consumers pay in the marketplace, showed that inflation was slightly higher than anticipated on a year-over-year basis.

PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain.
The BLS reported that about two-thirds of the rise in headline PPI came from a 1.2% surge in goods prices, the biggest increase since August 2023. As with CPI, the acceleration was traced to energy prices, with saw a 4.4% increase in the final demand measure. Gasoline prices jumped 6.8% at the wholesale level.
Services costs increased 0.3%, boosted by a 3.8% surge in traveler accommodation services.

Retail shows rebound

On the retail sales side, the data indicated that consumers kept ahead of CPI inflation, which increased 0.4% on the month, though sales were still sluggish.
Excluding auto, retail sales rose 0.3%, one-tenth of a percentage point below expectations. Motor vehicle parts and dealers saw an increase of 1.6%, second only to the 2.2% gain for building material and garden centers on the month.
Despite slumping prices, gasoline stations reported an increase of 0.9%. Electronics and appliance sales rose 1.5% while miscellaneous store sales increased 0.6% and restaurants and bars were up 0.4%.
Retail sales posted a 1.5% gain on a year-over-year basis, below the 3.2% increase in the CPI.
This is breaking news. Please check back here for updates. More