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Euro zone inflation is expected to slow slightly to 2.5 percent when March data is published on Wednesday, providing something for both sides in the debate over when the European Central Bank should cut interest rates.
Most economists believe consumer price growth will decline from 2.6 percent the previous month. Small increases in commodity and food prices are expected to be largely offset by higher oil prices and the impact of the preceding Easter period, which is expected to lift holiday and flight prices.
“Steady core inflation should reflect the ongoing deflation in goods and a temporary re-acceleration in services prices due to the earlier timing of Easter, which is expected to lead to an increase in the prices of holiday-related items,” UniCredit Bank economists wrote in a note.
Deutsche Bank analysts expect that the early timing of Easter will raise holiday package prices by 10 percent in March compared to the previous month, and raise European air ticket prices by an annual rate of 4 percent in March, before falling by 8 percent. percent in April.
Despite this, national inflation data published this week indicated that overall price pressures still increased less than expected in March.
Spain's inflation rate rose less than economists' expectations to 3.2 percent in March, despite a reduction in government support, which led to higher electricity and fuel prices. The inflation rate in France slowed from 3.2 percent to 2.4 percent. In Italy, price growth rose from 0.8 percent to 1.3 percent, but was lower than economists' expectations of 1.5 percent.
The ECB next meets to decide on policy on April 11. But senior policymakers have already indicated they are likely to wait until June to check whether wage pressures moderate enough to cut interest rates. If inflation slows only slightly in March, as is widely expected, it is unlikely to persuade interest rate setters to change their plans. Martin Arnold
Did US hiring slow in March?
The pace of US employer hiring is expected to slow in March, but it is unlikely to convince the Fed to cut interest rates early.
The Labor Department is expected to announce on Friday that the United States added 200,000 jobs in March, according to economists polled by Reuters. That's down from the 275,000 added in February. The unemployment rate is expected to remain unchanged at 3.9 percent.
Growth in February and March continues to indicate that the labor market remains strong. The steady state of the unemployment rate also suggests that the numbers are unlikely to convince the Fed to cut interest rates earlier or faster than current expectations of three cuts this year starting this summer.
But continued weakness in the coming months may help explain why interest rates will be cut in the future, wrote Ian Lingen, head of US interest rates strategy at BMO Capital Markets.
“While there is no degree of weakness… “In jobs data that would prompt the Fed to cut before June, investors were keenly aware that the risk of higher unemployment still provides a potential impetus to accelerate policy,” Kate Duguid said.
Will confidence in China's business sector start to rise?
Investors will be closely monitoring China's business confidence survey for signs that low sentiment is starting to lift.
Caixin is scheduled to release its March services PMI reading on Wednesday. In recent months, Caixin's PMIs have outperformed their official counterparts from the National Bureau of Statistics, which focuses on larger, more state-owned companies.
In particular, the Caixin Services PMI – i.e. a reading above 50 – has expanded every month since December 2022, when China ended its long-standing Covid-19 eradication policy. This suggests some signs of recovery in the moribund economy with restaurants, movie theaters and malls fully reopening after years of intermittent closures.
“The encouraging start to industrial data at the start of the year also raises the possibility of an upside surprise,” analysts at ING wrote in a recent note. However, another month of business expansion is unlikely to bring inflows into depressed Chinese stock markets, or significantly change muted business and consumer sentiment.
The biggest problem is that China's current plan to achieve a 5 percent growth target for 2024 still relies heavily on exports rather than stimulating domestic consumption.
But China's economy is now so large, and foreign political opposition to some of its exports so high, that it is not clear whether foreign demand will be enough to lift Asia's largest economy from its deflationary path. William Sandlund
