US Federal Reserve to Scrutinise CPI Inflation Report
The April US CPI inflation report is among the most important financial data releases this week before attention shifts to London and the Bank of England’s (BoE) interest rate decision.
The US Treasury Secretary Janet Yellen said that a steep economic downturn could be on the way if Congress fails to raise the debt ceiling. Raising or suspending the debt ceiling would enable the US government to pay its debts.
In Japan, the Bank of Japan (BoJ) Governor Kazuo Ueda said that “the impact of recent US and European bank failures on Japan's financial system is likely limited.” Ueda noted, “if price target is met in a sustainable, stable manner, the BoJ will end the yield curve control and then shrink its balance sheet.”
US CPI inflation rises in April?
The Bureau of Labour Statistics (BLS) will publish its April CPI inflation report on Wednesday morning, just a few days after the NFP set of data that surpassed economists’ expectations. As the Fed is obliged to maintain price stability, the CPI report provides valuable data to be taken into consideration when planning its monetary policy.
Economists forecast a 0.4% rise, on a month-to-month basis, in April. They also suggest that the inflation rate rose to 5.2%, on an annualised basis, with the figure remaining quite a bit higher than the central bank’s 2% target.
Chinese exports grow in April
The Chinese National Bureau of Statistics (NBS) announced that the country’s exports grew 8.5% (in US dollar terms) in April, marking a second-straight month of growth, while imports fell 7.9% on a year-to-year basis. Economists polled by Reuters had forecast that exports would grow by 8% while the imports figure would remain unchanged.
BoJ minutes reveal potential inflation overshoot debate
The Bank of Japan published its April meeting minutes on Monday, sharing interesting insights regarding the BoJ’s policymakers’ forecasts. A Reuters report suggested that several BoJ board members expressed their concern regarding the danger of inflation accelerating more than anticipated.
One of the nine board members said that a policy shift debate must be made cautiously as reversing ultra-loose policy could have wide-ranging effects on consumers. Some of the committee’s members noted that there are some positive signs showing the country’s inflation is losing ground and dropping closer to the central bank’s 2% inflation rate target.
Goldman Sachs: BoE to tighten policy even more
Goldman Sachs (GS) economists have warned that the Bank of England (BoE) might have to raise borrowing costs to 5% in order to fight inflationary pressures. Currently, the UK has the highest inflation rate among the G7 countries. The UK government has vowed to half the inflation rate by the end of this year.
The GS report suggests that this wouldn't be an easy task. “While it is possible that the [Bank’s rate-setting] monetary policy committee might want to slow the hiking to a quarterly pace after the May meeting, we remain sceptical that this will be feasible amid ongoing inflationary pressures. We, therefore, expect the monetary policy committee to continue to hike in 25 basis point steps until reaching a terminal rate of 5% in August,” economists note.
The GS report gives a vote of confidence to the UK economy as it mentions that “we think the UK can avoid a deep recession. The growth picture is a more constructive one than the Bank of England has been painting."
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