UK CPI Inflation in the Spotlight, PBoC Cuts Rates
The UK CPI inflation report due to be released on Wednesday is going to be among the most important financial releases as the week starts. With the Bank of England’s interest rate decision due on Thursday, the report is expected to be scrutinised by market analysts.
The People’s Bank of China (PBoC) moved forward with relaxing its monetary policy as most economists had expected. In Europe, some European Central Bank (ECB) policymakers stressed that the eurozone’s central bank should not refrain from lifting borrowing costs once again next month.
UK May CPI Inflation Report
Early on Wednesday morning, market analysts will have the opportunity to scrutinise UK CPI inflation data released by the Office for National Statistics (ONS). Economists forecast that CPI inflation in May will come in at 8.5% on a year-to-year basis. If the forecast is to be confirmed, it would mean that headline inflation fell by 0.2% when compared to April’s figure.
The Bank of England board expects inflation to drop to 5% by the end of 2023 while its analysts anticipate consumer prices growth to reach the bank’s 2% target by the end of 2024. It should be noted that on Thursday the BoE’s board will announce its interest rate decision with economists suggesting that more monetary policy tightening could be on the way.
China PBoC Rate Decision
The PBoC’s governing board cut the one-year loan prime rate by 10 basis points from 3.65% to 3.55% and trimmed the five-year loan prime rate by 10 basis points from 4.3% to 4.2% — for the first time in the last ten months.
The change in the Chinese central bank’s monetary policy was anticipated by economists as recent sets of financial data showed that the local economy struggles to gather pace.
Canadian Retail Sales rise in April?
On Wednesday, Statistics Canada will share info regarding the country’s retail sales in April. Economists suggest that retail sales across the country rose by 0.2% in April on a monthly basis, returning to positive territory after recording a 1.4% drop in March.
The Conference Board of Canada (CBoC) published a report some days ago noting that its index of consumer spending showed a drop in purchases in the first week of April, but steady growth for the rest of the month. The CBoC survey mentioned that “the general increase could indicate that people believe influences on financial burdens such as interest rate hikes have peaked, allowing them to commit more toward purchasing rather than saving.”
It should be noted that although the Bank of Canada (BoC) had vowed to pause its monetary tightening policy plans, it was forced to raise interest rates at the beginning of the month when data reports showed the economy to be overheating.
ECB policymakers comment on borrowing costs
Two of the ECB’s policymakers suggested that increasing borrowing costs would be appropriate based on the latest financial data reports.
Isabel Schnabel said that “the fact that we underestimated inflation persistence last year, raises the probability we are underestimating inflation today. We thus need to keep raising interest rates until we see convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to the target of 2%.”
Peter Kazimir, another ECB board member, noted that stopping rate hikes too soon would pose a much more significant risk than overtightening. Kazimir also said that “upward inflation risks are still substantial, linked to the labour market, food prices, profit margins.”
Goldman Sachs cut its forecasts for China’s GDP
Goldman Sachs (GS), one of the largest investment banks in the world, announced that it cuts its forecast regarding China’s GDP growth rate in 2023. GS analysts lowered the growth outlook to 5.4% from 6.0%, suggesting that further economic turbulence could be on the way.
The GS note mentioned: “With the reopening boost quickly fading, medium-term challenges such as demographics, the multi-year property downturn, local government implicit debt problems, and geopolitical tensions may start to become more important in China’s growth outlook.”
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