US inflation top of the agenda with Fed interest rate cuts ‘not far’ away
The latest US inflation figures will dominate markets’ attention this week as investors look for signals on when central banks will start cutting interest rates.
Inflation has fallen sharply across many advanced economies, but central banks have so far been unwilling to cut interest rates when they are not absolutely certain that inflation is under control.
“All eyes will be on the US CPI release next Tuesday and the focus will be on whether the inflation uptick seen in the January report continues and could lead markets to push back the timing of Fed rate cuts,” analysts at Deutsche Bank said.
Economists think prices will rise 0.4 per cent in February on the back of strong gasoline prices, meaning the headline rate of inflation will stay at 3.1 per cent.
Core inflation meanwhile is expected to fall to 3.7 per cent having remained stuck at 3.9 per cent in January.
“The rebound in gasoline prices suggests headline CPI rose by 0.4 per cent, with the annual rate unchanged at 3.1 per cent,” analysts at Capital Economics said. “But we expect headline and core inflation to fall further over the months ahead.”
Last week Jerome Powell, chair of the Fed, said rate-setters are still “waiting to become more confident that inflation is moving sustainably at two per cent”.
“When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction,” he said. The Fed’s next policy meeting is on 20 March.
US retail sales figures and producer prices will also be released during the week, giving markets a lot to digest over the course of the week.
In the UK, February GDP figures and the latest labour market update will be released ahead of the Bank of England’s next meeting on 21 March.