US And UK CPI Inflation Reports In The Spotlight
The US and UK CPI inflation reports will be in the spotlight of investors and traders tomorrow as both of them could play a significant role in the implementation of monetary policies by the US Federal Reserve (Fed) and the Bank of England (BoE).
The Japanese yen fell against the US dollar earlier in the day after some comments on interest rates made by the Bank of Japan (BoJ) Deputy Governor, Ryozo Himino, that seemed to fuel uncertainty about the timing of the next rate hike.
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US CPI Inflation: Surge In December?
On Wednesday afternoon, the US Department of Labour Statistics will release the awaited US CPI inflation report for the month of December. Economists suggest that CPI inflation could come in at 2.8% on a year-to-year basis, slightly higher than November’s reading. On a month-to-month basis, analysts suggest that the rate will likely remain stable at 0.3%.
The strong NFP report, published last Friday, has already dampened expectations for future Fed rate cuts. Economists suggest that a January rate reduction is likely off the table and add that a report showing rising inflation in December could put the whole 2025 forecast in question.
UK CPI Likely To Have Risen In December
On Wednesday morning, the Office for National Statistics (ONS) will release data regarding the UK’s CPI inflation in December. The report is important as it will include data related to Christmas sales. Market analysts expect CPI inflation to come in at 2.7% on a year-to-year basis, slightly above November’s 2.6% figure. Monthly inflation is expected to come in at 0.4%, higher than November’s reading.
Analysts at S&P Global wrote: “Inflation has therefore already risen further above central bank targets even before we see the potential inflationary impact of tariffs and new immigration policies in the US, and rising labour cost burdens on employers in the UK. December PMI data also showed services inflation ticking higher in both cases.”
BoJ Deputy Governor Talks Interest Rates
The BoJ’s Deputy Governor, Ryozo Himino, said that it would not be normal for real borrowing costs to remain in negative territory once the country’s economy had overcome factors that caused deflation in the past years.
Delivering a speech in front of Japanese business leaders in Yokohama, Himino noted that "when the appropriate timing comes, we must shift policy without delay, as the effect of monetary policy is said to show up with a lag of one to one-and-a-half years. The likelihood of Japan's economy moving in line with our projection is heightening gradually.”
The BoJ’s governing board is expected to decide on interest rates next week with economists suggesting that Japan’s central bank could raise short-term rates from the current 0.25%.
China December Trade Data Beats Expectations
Good news regarding the Chinese economy came from the December trade report that showed imports and exports recording growth that surpassed expectations. The report indicated that exports in December surged by 10.7% in US dollar terms on an annualised basis. It should be noted that market analysts had expected a 7.3% rise. The same set of data showed that imports rose 1.0% on a yearly basis while analysts had expected a 1.5% contraction.
Speaking to CNBC, economists noted that “outbound shipments are likely to stay resilient in the near-term" but added that potential tariff hikes could dampen momentum. Analysts suggested that exports supported the Chinese economic growth in 2024. China’s GDP growth report is due to be released later this week.
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