US inflation will pose new test for Powell’s Fed: Eco Week Ahead

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(Bloomberg) – The Federal Reserve is getting fresh insight into its inflation challenge this week as U.S. prices have continued to rise at a stubbornly rapid pace over the past month.

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The Consumer Price Index report for October is due out on Thursday and is expected to have risen 7.9% from a year ago, only a slight slowdown from the 8.2% recorded in September, according to the median forecast of economists polled by Bloomberg News.

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Excluding food and energy, the index probably fell slightly to 6.5% compared to September’s 6.6% advance. That’s still well above the 2% inflation the Fed is targeting based on a separate gauge.

Month-to-month, the core measure is expected to rise 0.5%, matching the average pace since October last year and indicating the Fed has made little progress in stopping runaway inflation with its series of giant rate hikes.

Fed officials, led by Chairman Jerome Powell, raised their key rate on Nov. 2 by 75 basis points for the fourth straight meeting.

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Although they hinted at a potential willingness to slow the pace of increases at their next meeting in December, that will ultimately depend on whether the outlook for inflation eases. Policymakers are already signaling that rates could peak higher than expected.

What Bloomberg Economics says:

“On the surface, the core reading, which excludes food and energy, should hold good inflation news for Fed doves. mitigate.

—For more, read the full US Week Ahead

The surge in inflation certainly has implications for lawmakers as US voters head to the polls on Tuesday. Opinion polls suggest the Democrats will lose control of the House of Representatives and possibly the Senate as well.

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Click here to see what happened last week and below is our summary of what is happening in the global economy.

Asia

Japan is expected to give details earlier this week on a $200 billion extra budget to fund its latest economic stimulus package. The amount that will be financed by new bond issues will come under scrutiny as the country adds to the worst public debt burden in the developed world.

Japanese wage and spending figures released on Tuesday are expected to show a continued decline in purchasing power and household spending as inflation strengthens. Daily intervention data for September should show a single entry into the markets to support the yen before Japan steps up its strategy in October.

Reserve Bank of Australia Deputy Governor Michele Bullock sheds light on the latest policy thinking as the central bank appears to be settling on an extended steady-size rate hike strategy.

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China is expected to release trade data on Monday and inflation numbers on Wednesday, with weaker factory prices and subdued consumer prices another sign of weak momentum.

Indonesia releases GDP data on Monday and the Philippines on Thursday.

Europe, Middle East, Africa

The week kicks off with a meeting of eurozone finance chiefs in Brussels. They are likely to lament the economic woes of a region that appears to be headed for recession as consumer prices are at an all-time high.

A flurry of European Central Bank officials are expected to speak, including President Christine Lagarde, Vice President Luis de Guindos and Chief Economist Philip Lane.

In the UK, third quarter output is expected to show a contraction of 0.5% on Friday, proof that the economy is already in recession and that the Bank of England predicts that it could rival that of the 1990s. BOE rate makers – including chief economist Huw Pill – will be watched for any indication of what Britain’s central bank might do at its next meeting following its latest 75 basis point hike.

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In Eastern Europe, central banks in Poland and Romania are expected to raise rates to 7% and 6.75%, respectively. Serbia will also have to decide to change its position, a few days after reaching an agreement with the International Monetary Fund.

Data from Ghana on Wednesday could show annual inflation in October was almost four times the central bank’s 10% ceiling target. Egyptian inflation for October could be little changed from 15% the previous month on Thursday, in data that encompasses a period before the last devaluation of the pound.

Latin America

Chile releases a slew of economic data on Monday, including copper trade and exports, followed on Tuesday by October inflation figures which are expected to show a second consecutive year-on-year decline from the peak. of the August 14.1% cycle.

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In Brazil, election-related stimulus spending and government tax cuts are expected to support September retail sales figures. Expect a dramatic slowdown in consumer prices to extend into October, with early estimates of 6.4%, nearly 600 basis points below the April reading.

Analysts continue to improve their growth forecasts for the third quarter of the Colombian economy, suggesting strong results in September for manufacturing, industrial production and retail sales.

Last week, Peru’s central bank chief Julio Velarde looked a lot like a policymaker ready to break a record tightening cycle that took the key rate to a two-decade high of 7%. Inflation and the economy slow down.

During a busy week in Mexico, the focus will be on a full set of consumer price data and the central bank’s rate decision on Thursday.

While headline inflation is expected to ease after peaking in the third quarter, it is the core numbers that are worrying policymakers led by central bank chief Victoria Rodriguez. That, combined with a surprisingly strong third-quarter GDP report and a relentless Fed, should prompt Banxico to raise the benchmark rate to a record 10%.

—With help from Zoe Schneeweiss, Malcolm Scott and Robert Jameson.