Week Ahead: Eurozone and U.S. Inflation Under the Microscope
XM Group | Mar 24, 2023 09:41AM ET
Will PCE inflation further complicate the Fed’s rate path?
Hot on the heels of the FOMC meeting and the banking crisis, investors will have to digest another dose of inflation data out of America. The PCE inflation report comes out on Friday along with personal income and spending numbers. Whilst there’s been good progress in overall price pressures easing in recent months, the Fed is focusing its efforts these days on services inflation, and on that, Chair Jerome Powell’s latest assessment is that there has not been any progress when excluding housing components.
Policymakers will get the chance to take another look at February prices, this time in the form of the core PCE price index. The Fed pays a lot more attention to this particular measure of inflation so any upside surprises could boost bets of a follow-up 25-basis-point rate hike in May, which at the moment, the odds are constantly swinging above and below 50%.
Japan’s inflation rate eased back sharply in February, taking the pressure off the Bank of Japan to further scale back its stimulus policies. The March forecast is that core CPI in Tokyo continued to moderate slightly. The yen, which has been on a roll lately against its US counterpart, might struggle to extend its gains if the forecasts are met.
However, in the event that inflation reverses higher again, this could intensify speculation of some sort of policy action by the BoJ at its April meeting, as it would come on the back of the Spring wage negotiations where labour unions agreed to an inflationary pay deal that averages at 3.8% y/y.
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