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Inflation in the euro zone is expected to ease further on Friday, with data showing the underlying rate of rise in consumer prices, which excludes more volatile energy and food prices, will fall below 3% for the first time in two years. It is expected.
This will be a key milestone for European Central Bank policymakers ahead of their next meeting on March 7 to discuss when to start cutting interest rates.
The euro area's headline inflation rate has been steadily declining since its record high of 10.6% in October 2022. Economists polled by Reuters expect annual price increases to continue to slow to 2.5% in February from 2.8% in January.
However, this is unlikely to be enough to convince rate-setters that headline inflation will quickly fall to the 2% target, allowing them to start cutting rates.
Peter Shafrik, an economist at RBC Capital Markets, cited downward pressure on inflation as energy and commodity prices fell from their high levels a year ago, saying this year has seen “the last month of the year where base effects will be a big drag. “One,” he said. . “Therefore, the rest of the process of eliminating inflation is likely to be slightly slower than in the past,” he said.
Minutes of the ECB's last Governing Council meeting published last week showed that policymakers believed there was likely to be a “downward revision” to this year's inflation outlook, due in March.
However, most rate-setters also agreed that the disinflationary process remains fragile and easing too soon could undo some of the progress made. martin arnold
Will the Fed's preferred inflation measure fall further?
Fed-recommended inflation measures are expected to show some easing in price pressures in January, but progress is likely to be limited given what we already know about inflation last month. .
On Thursday, the Bureau of Economic Analysis will release Personal Consumption Expenditure Index data for January. The overall PCE figure is expected to be 2.4% year-on-year, down from 2.6% in December, according to a Reuters poll of economists. Excluding the volatile food and energy sectors, the Fed's most closely watched core measures are expected to rise to 2.8%, down from 2.9% last month.
The data will be released following a higher-than-expected CPI reading in January, which showed that headline interest rates had fallen but were lower than expected and that core inflation had not fallen. Traders adjusted their expectations for rate cuts this year following the release of the CPI data. Hot inflation in January, a strong job market and hawkish comments from Fed Chairman Jay Powell led investors to bet on six interest rate cuts this year, starting in June instead of March. became.
“PCE will likely post numbers in the near term that are inconsistent with achieving the Fed's 2% target,” said Eric Winograd, director of developed market economic research at AllianceBernstein. “I expect it to send the same message as the CPI, which is that we're not seeing the progress the Fed is looking for. We already know this is not going to be a good month for inflation.” Kate Duguid
Will China's statistics support market recovery?
China's manufacturing data released on Friday is expected to show continued stability in the sector, potentially aiding authorities struggling to stem a stock market slide.
The closely watched Caixin Manufacturing Purchasing Managers' Economic Index is expected to reach 50.6 this month, down slightly from January's 50.8, but still above 50, which is the dividing line between expansion and contraction. Still, this would mark his fourth consecutive month of increased activity.
The figures were announced as the Chinese government seeks to halt a market collapse caused by slowing growth and a crisis in the real estate sector.
After plunging in 2023, the benchmark CSI300 index, made up of listed stocks in Shanghai and Shenzhen, has risen 3% since January thanks to a flurry of state aid. Last week, the People's Bank of China lowered interest rates on mortgage-linked loans in a bid to boost the real estate sector.
Although investor sentiment toward China remains subdued, Bank of America strategists last week said they expect China to “outperform relative to its global peers” as bank lending recovers in the coming months. “There is room to do so,” he said.
Analysts at BofA said China's “credit impulse” (changes in credit flows) was “a headwind for growth for most of last year” but is now back in positive territory.
In a worst-case scenario, we expect China's manufacturing PMI new orders index to fall just below 50 by mid-year. Comparable index tracking activity in Europe and the United States is expected to decline even more sharply. george stair
