Fed’s Preferred Inflation Gauge Seen Staying Elevated: Eco Week

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(Bloomberg) — The Federal Reserve’s preferred measure of underlying price pressures probably remained elevated in February, keeping officials in a precarious spot as they seek to balance inflation-fighting resolve and stress on the banking system.

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The US personal consumption expenditures price index, excluding food and fuel, is forecast to rise 0.4% from a month earlier, according to the Bloomberg survey median. That would follow the largest advance since June. 

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Compared with February 2022, the core inflation gauge is seen up 4.7%, while the overall measure is projected to post a 5.1% advance — both more than double the Fed’s goal.  

Policy makers on Wednesday raised their benchmark interest rate for the ninth straight meeting, to the highest since 2007, while stressing that their bid to tamp down inflation isn’t expected to deepen a nascent banking crisis. Still, rising borrowing costs risk adding to pressures on the financial system that could tip the economy into a recession.

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The government’s data on Friday are also expected to show inflation-adjusted personal spending declined in February after surging a month earlier.

What Bloomberg Economics Says:

“Fed Chair Jerome Powell’s preferred ‘supercore’ inflation indicator – core PCE services excluding housing – likely will show the sticky component of inflation running steadily at 4%-5% over the past few months, not an encouraging sign of progress on disinflation.”

—Anna Wong, Stuart Paul, Eliza Winger and Jonathan Church, economists. For full analysis, click here

The income and spending report takes top billing in a subdued week for US economic releases that includes readings on consumer confidence, home prices, and contract signings for purchases of previously-owned houses.

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Investors will likely pay closer attention to Fed officials this coming week in hopes of gauging the appetite for further rate hikes. Fed Governor Philip Jefferson will discuss monetary policy at event on Monday, followed later in the week by speeches from Boston Fed President Susan Collins, Richmond Fed President Tom Barkin, and governors Christopher Waller and Lisa Cook.

Fed Vice Chair for Supervision Michael Barr is scheduled to testify at separate hearings of the Senate Banking Committee and the House Financial Services Committee on recent bank failures. 

Also in North America, Canadian Finance Minister Chrystia Freeland unveils a federal budget, promising prudence even as the Trudeau government faces pressure to ramp up spending on clean-technology incentives to stay competitive with the Biden administration’s generous new industrial policy in the US.

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And elsewhere, euro-zone inflation data are expected to reveal conflicting signals on price growth, China’s purchasing manager indexes will show the strength of factory activity there, and central-bank decisions may feature rate hikes from South Africa to Mexico.

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

Asia

The strength of China’s purchasing manager indexes will be a key focus for investors and policy makers trying to take the pulse of the recovery in the world’s second-largest economy in the aftermath of lifted pandemic restrictions. 

The PMIs come amid a slew of regional data on Friday, including industrial output from South Korea and employment factory output and Tokyo inflation figures from Japan for March, which follow promising national data for the prior month.

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Price growth numbers Down Under due out the previous day will help shape views on the Reserve Bank of Australia’s next rate decision in early April. 

The Bank of Thailand, meanwhile, is expected to raise borrowing costs again on Thursday.

Europe, Middle East, Africa

The data highlight in the euro zone will be inflation on Friday, a report likely to provide ammunition to both hawks and doves at the European Central Bank about the next rate move.

On the one hand, headline price growth is likely to fall drastically — with all but one economist predicting a drop, and the most optimistic forecasts showing declines of almost two percentage points. That dynamic may reflect similar inflation slowdowns in each of the region’s biggest economies.

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But an underlying euro-zone gauge that strips out volatile elements such as energy and food might go the other way, accelerating further to reach a new euro-era record.

Inflation prospects at a time of renewed bank turmoil may preoccupy ECB officials in several appearances. Speeches by Bundesbank chief Joachim Nagel on Monday and Tuesday might draw attention amid investor speculation swirling around Deutsche Bank AG. 

ECB President Christine Lagarde will make remarks on Tuesday in Frankfurt, and then will appear in Florence on Friday.

In the UK, Bank of England Governor Andrew Bailey delivers a speech at the London School of Economics on Monday, and will testify the next day on the UK rescue of the local arm of California’s Silicon Valley Bank. 

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And Swiss National Bank official Andrea Maechler, whose institution just raised rates after overseeing the forced takeover of Credit Suisse Group AG, speaks in Zurich on Thursday. 

Elsewhere in the region, Turkey’s trade deficit is expected to have widened further in February, with data due Friday showing the impact of soaring energy bills.

And in Russia, consumer and industrial production data on Wednesday will give a fresh reading on whether the slow recovery after a year of war is continuing.

Multiple rate decisions are due. Here’s a quick summary for Eastern Europe:

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And here’s a look at what central banks around the African continent may do:

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Latin America

Amid a busy week in Brazil — the weekly Focus survey of analysts, current account, lending, the broad IGP-M inflation report — the meeting minutes of the central bank’s March 22 rate decision and the quarterly inflation report stand out.

Brazil watchers on Tuesday will be keen to see if the post-decision’s hawkish language carries over to the meeting minutes. Two days later, the report itself may take a back seat to the post-release presser given by central bank chief Roberto Campos Neto, who’s squarely in President Luiz Inacio Lula da Silva’s crosshairs over Brazil’s 13.75% key rate.

In Argentina, January GDP-proxy data may show a fifth straight negative print as drought, triple-digit inflation and tight currency conditions undercut activity.

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Chile in the coming week posts six indicators for February, all likely to underscore the loss of momentum that’s widely expected to tip the economy into recession this year.

Rounding out the week, the central banks of Mexico and Colombia are all but certain to extend record hiking campaigns with quarter-point increases, though both are nearing their respective terminal rates.

Look for Banxico to raise its key rate for a 15th straight time to 11.25%, while Banco de la República de Colombia hikes for a 13th straight meeting to 13%.

—With assistance from Robert Jameson, Malcolm Scott, Michael Winfrey, Stephen Wicary and Gregory L. White.