Key inflation gauges may offer path to rate cuts

Important week: The US Federal Reserve Building in Washington. The latest US inflation readings are set to be released this Friday. — Reuters

NEW YORK: The US Federal Reserve’s (Fed) favoured inflation yardsticks are poised to show the tamest monthly advances since late last year – a stepping stone for officials to begin lowering interest rates, possibly as soon as September.

Economists expect no change in the May personal consumption expenditures price index and a minimal 0.1% gain in the core measure that excludes food and energy, based on median projections in a Bloomberg survey of economists.

The report, due Friday, is also projected to show 2.6% annual advances in both the overall and core gauges. The expected increase in the core measure, which paints a better picture of underlying inflation, would remain the smallest since March 2021.

Since their last meeting, Fed officials have said that while they’re encouraged by the simmering down in other inflation data – including the consumer price index – they need to see months of such progress before lowering rates.

At the same time, the labour market – the other part of the Fed’s dual mandate – is still plugging along, albeit in a lower gear. A healthy job market is providing policymakers some flexibility on the timing of interest-rate cuts.

The latest inflation numbers will be accompanied by personal spending figures that will inform on services outlays after recent retail sales data showed less of an appetite for merchandise. The median forecast calls for a slight acceleration in nominal personal consumption as well as income.

Bloomberg Economics said: “We don’t think the slower inflation print will be enough to convince officials by the time of the July Federal Open Market Committee meeting that inflation is on a firm trajectory down to the Fed’s 2% target.”

Among other data in the coming week are readings on June consumer confidence and reports on May contract signings for purchases of both new and previously owned homes.

In addition to the third estimate of first-quarter economic growth, the government will release figures on durable goods orders for May.

In Canada, central bank governor Tiff Macklem is set to speak in Winnipeg, consumer price data for May are expected to show core inflation easing for a fifth month, and a gross domestic product release for April along with a flash estimate for May will also provide crucial insight.

Elsewhere, inflation numbers in three major eurozone economies may also cheer officials, while central banks in Sweden and Mexico will probably keep rates on hold.

Asia meanwhile gets under way with the release of minutes from this month’s Bank of Japan policy board meeting.

The document takes on heightened interest after authorities pledged to cut bond buying, while also saying that investors will have to wait until late July before getting details about the scale of the reductions. Hints may emerge this week.

Elsewhere, Reserve Bank of Australia assistant governor Christopher Kent speaks tomorrow and deputy governor Andrew Hauser a day later, with the focus falling on any fresh hints of hawkishness after the governor said the board considered a hike at its meeting this month.

They speak after data tomorrow is expected to show Australian inflation ticked higher in May.

Japan will see a leading indicator for national inflation trends with the release of the Tokyo CPI gauge for June.

Bloomberg Economics expects inflation in the capital to have picked up to 2.1%, lifted by an increase in utility prices after the government cut energy subsidies. — Bloomberg

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