Key US inflation gauge is set to hit a new four decade high

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The personal consumption expenditures price index is seen to have surged 6% in January

Federal Reserve Chair Jerome Powell and his colleagues in the coming week can expect to see their key inflation metric accelerate to a fresh four-decade high last seen when Paul Volcker led the US central bank.

The personal consumption expenditures price index, which the Fed uses for its inflation target, probably jumped 6 per cent in January from a year earlier, according to the median of a Bloomberg survey of economists. The core measure, which excludes food and fuel, is forecast to climb 5.2 per cent.

Less than a month before the Fed’s next policy meeting, a sharper-than-projected advance in the price gauge could turn up the heat for a half-point increase in the benchmark interest rate. January’s consumer-price index rose more than forecast, with broad advances in the costs of goods and services.

Investors will gauge central bankers’ appetite for a half-point move after speeches by Governors Christopher Waller and Michelle Bowman and regional Fed presidents Loretta Mester of Cleveland, an FOMC voter in 2022, Raphael Bostic of Atlanta, and Thomas Barkin of Richmond.

Inflation at the earlier stages of the production process also remains elevated, with fears of a potential Russian military invasion of Ukraine contributing to rising costs of oil and other commodities.

The Commerce Department’s report on Friday will also indicate how consumer spending and incomes fared in January, before and after adjusting for inflation. Other reports on the schedule include new-home sales, consumer confidence and durable goods orders.

February readings of manufacturing and services from IHS Markit earlier in the holiday-shortened week will shed some light on the U.S. economy’s rebound from omicron-related softness a month earlier. Economists are calling for a modest quickening in the pace of activity.

“An escalation of the Russia-Ukraine conflict may result in an unfavorable mix of even higher energy prices, tighter financial conditions and an adverse confidence shock – all relevant to Fed thinking on the appropriate pace of tightening,” said Bloomberg economists Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger.

Central bank actions

Elsewhere, central banks from Hungary to New Zealand may hike rates again, the Bank of England governor will testify in Parliament, and South Africa announces its budget.

Click here for what happened last week and below is our wrap of what’s coming up in the global economy.

Asia-Pacific’s leading rate hikers both meet this week, with the Reserve Bank of New Zealand widely expected to push up interest rates again on Wednesday as inflation continues to soar.

The Bank of Korea is seen holding steady at Lee Ju-Yeol’s final meeting as governor, having already raised borrowing costs three times since the summer.

Preliminary trade figures from South Korea, due at the start of the week, will give the latest pulse check on global trade.

The Reserve Bank of Australia will closely scrutinize wage growth data on Wednesday amid continued speculation that higher rates will come sooner rather than later. Capital spending figures on Thursday may also fuel rate-hike chatter Down Under if they show greater-than-expected strength.

February inflation figures for Tokyo at the end of the week will probably show price growth still at a subdued level compared with the rest of the world despite accelerating energy bills vexing Japanese voters ahead of a summer election.

Purchasing manager surveys in the euro region and UK will reveal the health of manufacturing and services just as coronavirus restrictions thaw. Economists predict all gauges will show improvement in February. That’s also the case for Germany’s Ifo business confidence index and an equivalent measure in France.

Such data will inform European Central Bank policy makers as the balance of opinion hardens toward raising rates this year to quell inflation. At least six ECB officials will make public remarks in the coming week, including Vice President Luis de Guindos and Executive Board member Isabel Schnabel.

BOE officials are widely predicted to raise rates again in March. For clues on the size of the move, investors will scrutinize testimony by Governor Andrew Bailey and colleagues on Wednesday, along with other scheduled speeches.

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