Key US Inflation Metric to Ease as Focus Shifts to Jobs Market
A shopper at a clothing store in downtown Detroit, Michigan.
(Bloomberg) — The Federal Reserve’s preferred gauge of underlying inflation likely grew at a slower pace last month, offering policymakers some breathing room to address weakness in the US labor market.
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A report on Friday is forecast to show the personal consumption expenditures price index excluding food and energy rose 0.2% in August, compared with 0.3% in July. On an annual basis, the so-called core measure is seen holding at a still-elevated 2.9%.
Fed Chair Jerome Powell pointed to a cooling labor market to explain why officials lowered interest rates on Wednesday for the first time this year, but he made clear that the central bank remains vigilant on inflation as President Donald Trump’s tariffs continue to work through the economy.
“It’s challenging to know what to do,” Powell said. “There are no risk-free paths now.”
Several Fed officials are set to speak at public events in the coming week, including Powell on Tuesday in Rhode Island. New Fed Governor Stephen Miran — on a temporary leave from his role as chair of the White House Council of Economic Advisers — as well as Michelle Bowman, Mary Daly and Alberto Musalem are scheduled to offer their thoughts on the economy.
Along with the August price data, Friday’s report is projected to show inflation-adjusted consumer spending rose at a more subdued pace last month. Economists will also look at the personal income data to gauge the ability of consumers to continue spending — a key driver of US growth.
What Bloomberg Economics Says:
“We see signs that the economy is early in the recovery phase — and we agree with the direction of the median FOMC participant’s growth and unemployment revisions. One piece of supporting evidence will come from August spending data, which should show consumers are spending briskly even as income growth has been tepid.”
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For full analysis, click here
Other data in the coming week will include an updated look at economic growth from the past several years. Separate reports will offer insights into the US merchandise trade deficit, weekly applications for unemployment benefits, and consumer confidence.
Turning north, Canadian gross domestic product data by industry for July and a flash estimate for August will shed light on how the third quarter is shaping up after the US tariff war crushed Canada’s exports and forced a 1.6% contraction from April through June.
Bank of Canada Governor Tiff Macklem will speak in Saskatchewan about how trade upheaval is impacting inflation and rates. Statistics Canada will also release population estimates for the second quarter as Prime Minister Mark Carney’s government tries to unwind a post-pandemic immigration spike that’s squeezed the housing supply.
Elsewhere, flash purchasing manager indexes in Asia and Europe will be in focus. Policymakers in Sweden, Switzerland and Hungary are expected to hold rates steady, while Mexico and Nigeria are set to cut.
Click here for what happened in the past week, and below is our wrap of what’s coming up in the global economy.
Asia
Asia’s week begins with South Korea’s 20-day trade figures, an early gauge of global demand and chip exports. China sets its loan prime rates the same day, with markets expecting no change.
On Tuesday, PMIs from Australia and India will show whether momentum in services is holding up as manufacturing remains under strain. India’s readings will be key given recent resilience in domestic demand.
Singapore and Malaysia both publish inflation figures on Tuesday, while Australia issues its partial gauge of prices on Wednesday that will help shape expectations for the Reserve Bank’s policy outlook.
Japan comes into focus at midweek with PMIs, while retail sales will provide a check on household spending on Thursday, and Tokyo inflation the following day will be a key early signal for nationwide prices. It’s also a critical input for the Bank of Japan as it debates policy normalization.
Singapore publishes industrial production on Friday, and South Korea releases business and consumer sentiment surveys. New Zealand reports consumer confidence figures.
China on Saturday reports August industrial profits, a test of whether corporate earnings are stabilizing after months of deflationary pressure. The release follows data that showed government spending increased at a slower rate for the second straight month in August. Waning fiscal support contributed to the two weakest months for the country’s economy this year in July and August.
Rounding out the calendar are Malaysia’s inflation figures, along with reserve updates from Indonesia and Thailand, a budget balance report from the Philippines, and Pakistan’s GDP data.
Europe, Middle East, Africa
Among several central bank decisions, the Riksbank outcome on Tuesday looks set to be an unusually close call, with analysts split over whether policymakers will hold their benchmark at 2% to parry a spike in inflation, or cut to 1.75% to give growth a boost. Investors will also focus on the bank’s new forecasts for borrowing costs.
The same day, Hungary’s central bank is poised to keep its rate at a European Union-high of 6.5% for a 12th month, despite a currency rally that’s helping reduce price pressures. And on Wednesday, Czech officials are also likely to leave rates unchanged as inflation risks return.
The Swiss National Bank’s decision on Thursday will be its first on whether to return to the negative monetary policy it exited three years ago. Most economists reckon it’ll avoid taking that step for now, given the adverse effects of such a move on pension funds and the financial system.
The meeting will be particularly significant because it’s also the first to be followed four weeks later by a publication summarizing the arguments made by officials during their discussion — a step toward the sort of minutes-style communication used by advanced-economy peers.
Survey numbers take center stage in the euro zone. PMIs are due on Tuesday, and Germany’s closely watched Ifo business sentiment gauge follows a day later.
The European Central Bank’s survey of consumer inflation expectations will be published on Friday. ECB officials speaking during the week include chief economist Philip Lane and Executive Board member Piero Cipollone.
France’s ongoing political and fiscal crisis will keep investors focused. Consumer confidence numbers there on Thursday will be scrutinized, while Scope Ratings may issue an update on the country the following day.
In the UK, aside from its own PMIs on Monday, Bank of England Governor Andrew Bailey, chief economist Huw Pill and policymaker Megan Greene are all making appearances.
A number of monetary decisions are scheduled around the African continent:
Nigeria on Tuesday is poised to deliver its first cut in borrowing costs since the pandemic as inflation cools, making it the last of Africa’s four biggest economies to begin easing.
On the same day, Lesotho, whose currency is pegged to South Africa’s rand, will probably match the Reserve Bank’s move from Sept. 18 and leave its key rate unchanged at 6.75%.
Sierra Leone may reduce borrowing costs on Thursday as inflation continues to slow.
Latin America
Banco Central do Brasil on Tuesday rolls out the minutes of its Sept. 17 rate-setting meeting, at which policymakers voted unanimously to keep their key rate at 15% with inflation still well above the 3% target.
Finance Minister Fernando Haddad had earlier sounded a slightly dovish tone, but the post-decision statement was decidedly hawkish.
Fast forward to Thursday, the central bank will publish its quarterly monetary policy report, updating several economic forecasts including inflation and the output gap. Brazil’s mid-month inflation report will likely see a jump back above 5%.
Later Thursday in Mexico, most analysts expect Banxico to deliver a 10th consecutive rate cut — the bank’s second-longest streak since 2008, exceeded only by the 11 straight reductions during 2019-20 — to 7.5%.
Latin America’s No. 2 economy has shown a surprising level of resilience given the drag from US trade and tariff polices, and inflation — while above the 3% target — is within Banxico’s tolerance range and running roughly in line with central bank’s estimates.
Mexico will also post retail sales and a GDP-proxy figure for July, in addition to mid-month inflation data.
In Chile, minutes of the central bank’s Sept. 9 meeting will likely underscore policymakers’ concern with stubbornly elevated core inflation, boosting speculation that the bank will again hold at 4.75% in October.
Argentina’s July GDP-proxy data comes on the heels of downbeat June activity and second-quarter output reports that prompted numerous analysts to mark down their 2025 GDP forecasts. Activity in July may have declined for a third straight month.
Scoping out the road ahead, Brazil and Mexico watchers will get the latest market readouts on inflation expectations and a variety of economic forecasts.
–With assistance from Swati Pandey, Laura Dhillon Kane, Monique Vanek, Robert Jameson, Mark Evans, Piotr Skolimowski, Charlie Duxbury and Reade Pickert.
