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US inflationary pressures are expected to ease slightly in February, a development the Federal Reserve will welcome as it assesses when to start cutting interest rates this year.
The Bureau of Labor Statistics on Tuesday will release its latest U.S. Consumer Price Index report, which is expected to show headline inflation was unchanged at an annual rate of 3.1 percent in February, according to economists polled by Reuters.
However, core inflation, which excludes volatile food and energy components and is used as a measure of underlying price pressures in the economy, is expected to ease to 3.7 percent from 3.9 percent in the previous month.
This data comes on the heels of 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-equivalent rent — has remained strong even amid the Fed's rate hike campaign, keeping core rate hikes stubbornly high.
The numbers, in line with poll expectations, are likely to be good news for the Fed, which at its March meeting will release its latest “dot chart” of officials’ views on where interest rates will be next year.
Any upside surprise would increase the likelihood that Fed policymakers will curb their expectations for rate cuts this year to just two quarter-point moves, from three currently, said Ian Lingen, head of U.S. interest rates strategy at BMO Capital Markets. Kate Duguid
Are wages in the UK still rising?
Strong wage increases in the UK have made the Bank of England cautious about cutting interest rates. Investors will be watching data this week that provides the latest clues to the extent to which wages are fueling broader inflationary pressures.
Economists polled by Reuters expect annual wage growth to remain unchanged at 6.2 percent in the three months to January. This is lower than the recent peak of 7.9 per cent in the three months to August, but it is nonetheless a rate that suggests the Bank of England has significant work to do to reach its 2 per cent inflation target.
The significantly larger decline is likely to prompt markets to increase their expectations for interest rate cuts this year, after reducing them in recent weeks.
“The next round of official labor market data is unlikely to give the result [BoE] “This is a strong reason to signal an imminent rate cut,” said Robert Wood, an economist at Pantheon Macroeconomics, a consultancy.
Markets will find little clarity on labor market tightness – and corresponding wage pressures – from employment data as the survey continues to be affected by a low response rate. “We expect unemployment to rise slightly to 3.9% in January, but we are far from confident, and in any case, we have no idea how accurate the results are,” said Eli Henderson, an economist at Harvard University. Investec.
Instead, January GDP data, released on Wednesday, should indicate whether the country is emerging from recession in the second half of 2023.
Henderson expects January's GDP numbers to deliver a “more optimistic message” with 0.3 per cent month-on-month growth “setting the stage for what we believe will be a quarterly increase in output over the year.” [the first quarter], which would end the technical stagnation. Valentina Romy
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 faltering real estate market.
Real estate has become one of the biggest factors affecting investor and consumer sentiment in China, with house prices recording consecutive declines for all but two of the past 21 months. But in January, prices fell just 0.4 percent, a slight improvement compared to December's decline.
Housing was once the first choice of Chinese consumers as an investment vehicle for their savings. The real estate sector was also previously responsible for about a quarter of economic activity and land sales to long-time local government-funded developers. Now, as falling prices and a liquidity crunch continue to weigh on developers, house prices have contracted, dragging down consumer confidence at a time when Beijing needs to boost demand to help support 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 stabilized around more sustainable levels will be welcome for investors and local property owners alike. The February readings will be the first since China cut its key five-year loan rate, which is used as a benchmark for mortgages nationwide.
However, Ting Lu, chief China economist at Nomura Bank, said a recovery in the real estate sector is “not on the horizon.” Developers “are still hesitant to acquire land,” Lu added [and] We expect land sales revenues to shrink further in 2024.” However, if house prices post gains in February, it could be a boost to market sentiment. William Sandlund
