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US inflationary pressures are expected to have eased slightly in February, a development that would be welcomed by the Federal Reserve as it evaluates when to begin cutting interest rates this year.
The Bureau of Labor Statistics on Tuesday will release its latest US consumer price index report, which is expected to show that headline inflation was unchanged at an annual rate of 3.1 per cent in February, according to economists surveyed by Reuters.
However, core inflation, which strips out the volatile food and energy components and is used as a gauge of underlying price pressures in the economy, is expected to have eased to 3.7 per cent from 3.9 per cent a month earlier.
This data follows a hot inflation report in January which showed that headline inflation moderated less than expected while core inflation was unchanged. The “shelter” category — housing costs that include rent and owner’s equivalent rent — has remained robust even in the midst of the Fed’s interest-rate raising campaign, keeping core price rises stubbornly high.
Figures in line with the survey expectations would likely prove good news for the Fed, which at its March meeting will release its latest “dot plot” of officials’ views of where interest rates will be in the coming year.
Any upside surprise would raise the possibility that Fed policymakers rein in their expectations of interest rate cuts this year to just two quarter point moves, from three currently, said Ian Lyngen, head of US rates strategy at BMO Capital Markets. Kate Duguid
Are UK wages still surging?
Solid wage increases in the UK have left the Bank of England cautious about cutting interest rates. Investors will be watching data this week that offer the latest clues how far pay is fuelling broader inflationary pressures.
Economists polled by Reuters expect annual wage growth to remain unchanged at 6.2 per cent in the three months to January. That is down from a recent peak of 7.9 per cent in the three months to August but nevertheless a rate that suggests the BoE has considerable work to do to hit its 2 per cent inflation target.
Only a significantly larger drop is likely to prompt markets to ramp up expectations for interest rate cuts this year, having scaled them back in recent weeks.
“The next round of official labour-market data is unlikely to give the [BoE] a strong reason to signal an imminent rate cut,” said Robert Wood, an economist at the consultancy Pantheon Macroeconomics.
Markets will find little clarity on the tightness of the labour market — and the corresponding wage pressures — from the employment data as the survey continues to be affected by a low response rate. “We are forecasting that unemployment will post a small uptick to 3.9 per cent in January, but we are far from confident and in any case, we have zero idea of how accurate the out-turn might be,” said Ellie Henderson, economist at Investec.
Instead, January’s gross domestic product data, released on Wednesday, should indicate whether the country is leaving behind the recession of the second half of 2023.
Henderson forecasts January GDP figures to deliver a “more upbeat message” with 0.3 per cent month-on-month growth “paving the way for what we think will be a quarterly rise in output over [the first quarter], which would bring the technical recession to an end.” Valentina Romei
Will Chinese house prices fall further?
China’s National Bureau of Statistics will publish house price data for February on Friday, providing a vital update on the country’s ailing property market.
Real estate has become one of the largest drags on both investor and consumer sentiment in China, with house prices posting sequential declines for all but two of the last 21 months. But in January, prices fell just 0.4 per cent — a slight improvement on December’s drop.
Housing was once Chinese consumers’ first choice for an investment vehicle to park their savings. The real estate sector was also previously responsible for about a quarter of economic activity and land sales to developers long funded local government. Now, with falling prices and a liquidity crunch still weighing on developers, house prices have contracted, denting consumer confidence at a time when Beijing needs greater demand to help bolster the economy and combat deflation.
But while the days of steady growth in housing prices may be over, signs that the country’s real estate market has at least stabilised around more sustainable levels would be welcome for investors and domestic property owners alike. And the February readout will be the first since China lowered its five-year loan prime rate, which is used as the benchmark for mortgages nationwide.
Even so, Ting Lu, chief China economist at Nomura, said a recovery in real estate was “not in sight”. Lu added that developers were “still reluctant to acquire land [and] we expect land sales revenues to shrink further in 2024”. If house prices do finally post gains in February, however, it could deliver a shot in the arm to market sentiment. William Sandlund
