The central bank’s preferred measure of core inflation is seen cooling

(Bloomberg) — The Federal Reserve’s first-line inflation gauge is set to show some relief from stubborn price pressures, confirming central bankers’ prudence about the timing of interest-rate cuts.

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Economists expect the price index of personal consumption expenditures minus food and energy – on Friday – to rise 0.2% in April. This would represent the smallest improvement so far this year, providing a better snapshot of core inflation.

The overall PCE price index rose 0.3% for the third month, according to the median estimate in a Bloomberg survey. This year’s increase contrasts with relatively flat readings in the final three months of 2023, underscoring uneven progress in the central bank’s inflation fight.

Federal Reserve Chairman Jerome Powell and his colleagues insisted they needed more evidence that inflation was on a sustained path to the 2% target before cutting the benchmark interest rate, which has been at a two-decade high since July.

The PCE price gauge is seen rising 2.7% on a year-over-year basis, while the core gauge is up 2.8% – both matching the previous month’s levels.

Officials earlier this month were united in their desire to keep interest rates on hold for longer, and “many” questioned whether they had enough control to keep inflation down to their target, according to minutes of their last meeting.

Also read: Minutes show officials rally at over-long prices

The latest inflation numbers are accompanied by personal spending and income figures. While demand grew at a solid pace in the first quarter, the data will inform service spending after flat retail sales in April.

Here’s what Bloomberg Economics says:

“This report will provide some encouraging signs that the inflationary process has not completely stalled. As income growth slows in a cooling labor market, consumers are gradually cracking down, which should provide continued inflationary impetus later in the year. Nevertheless, inflation is expected to moderate only very gradually this year, as holding price pressures are still in the pipeline. will be

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-Anna Wong, Stuart Paul, Elisa Winger and Estelle Oh, Economists. For full analysis, click here

Other data for the week included revised first-quarter gross domestic product on Thursday. Economists have predicted that growth may have moderated from the government’s initial estimate. The central bank will release its Beige Book summary of economic conditions across the country on Wednesday.

US central bankers speaking during the holiday-shortened week include John Williams, Lisa Cook, Neel Kashkari and Lori Logan.

Looking north, Canada will release GDP data for the first quarter. A slowing monthly pace in March and weak domestic demand could keep the Fed on hold for a June rate cut.

Elsewhere, Euro-zone inflation, Chinese industrial data and PMI numbers and Brazil’s price reports will be highlighted.

Click here to find out what happened last week and below is our summary of what’s to come in the global economy.

Asia

China’s manufacturing sector is in focus in the coming week. Industrial data on Monday will show whether profits rebounded in April after a sharp pullback in March.

Sustained deflation in producer prices and soft domestic demand may keep profits under pressure. China receives its official manufacturing PMI data on Friday, with the focus on whether the gauge holds above the 50 threshold that separates contraction from expansion for a third month in May.

On Friday, Japan’s industrial production growth slowed, while retail sales slowed in April.

Consumer inflation in Tokyo rose slightly in May, forecasting gains for national figures.

Meanwhile, China, Japan and South Korea are holding their first three-way summit since 2019 as Tokyo and Seoul pressurize Beijing to move closer to the US on issues ranging from defense to semiconductor manufacturing.

Australia’s consumer price growth is forecast to slow to 3.3%, still hot enough to put the Reserve Bank of Australia on hold.

Vietnam also reports CPI data along with industrial production, retail sales and trade for the week.

At the central bank, Kazakhstan sets its key policy rate on Friday.

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Europe, Middle East, Africa

In the Eurozone, according to economists’ forecasts, inflation may increase to 2.5% in May. A key benchmark is expected to stop weakening at 2.7% for the first time since July.

Combined with broader euro-zone data, national releases starting in Germany on Wednesday are expected to have gone the wrong way in three of the region’s four biggest economies. Only Italy is experiencing slower price growth.

Such results prevent progress toward the ECB’s 2% target, but officials’ steady signals for a quarter-point rate cut on June 6 make a month of data unlikely to derail them. Even so, some policymakers argue against any rush to ease further.

“The probability of seeing the first rate cut in 13 days is increasing,” Bundesbank President Joachim Nagel, a policy hawk, said in an interview on Friday. “If there’s a rate cut in June, I believe we’ll have to wait, wait until September.”

Other reports in the euro-zone include Germany’s Ifo business confidence index on Monday, the ECB’s survey of inflation expectations on Tuesday and economic confidence on Thursday.

ECB officials are due to speak with chief economist Philip Lane and the Dutch, French and Italian governors in the coming week. A pre-decision blackout period begins on Thursday.

The Bank of England has already gone quiet, canceling all speeches and public statements by policymakers during the campaign ahead of the UK general election on July 4.

Among other European central banks, highlights will be Sweden’s Riksbank’s financial stability report on Wednesday and Swiss National Bank President Thomas Jordan’s speech in Seoul.

A number of cash decisions are planned for the wider region:

  • Israel’s central bank is expected to keep its key rate at 4.5% on Monday, largely to keep war-related inflationary pressures in check and provide support to the shekel. Governor Amir Yaron is wary of easing monetary policy and further widening the gap between borrowing costs in Israel and the United States.

  • Ghana’s monetary authority left its key rate at 29% on Monday, tackling sticky inflation and supporting its faltering currency.

  • On Wednesday, Mozambique’s policymakers were poised to reduce borrowing costs, with consumer price growth expected to remain in single digits for the rest of the year.

  • On Thursday – a day after elections that could see the ruling African National Congress lose its majority – South African monetary authorities are forecast to keep their key rate at 8.25%, with inflation yet to return to the mid-point of their target range of 4.5%.

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Latin America

Next week Brazil reports its benchmark consumer price index mid-month along with May’s reading of broad inflation.

A combination of Brazil’s tight labor market and weak currency could limit the prospect of further inflation from current levels, with inflation already running close to consensus year-end forecasts.

The IPCA-15 price index fell below 4% last month – after rising more than 5% in September – which came two months after the central bank’s 2023 target of 3.19% was reached.

In Brazil, the central bank released its weekly survey of economists on Monday, with its inflation expectations and interest rate forecasts rising again, along with national unemployment, total outstanding debts and budget balances.

Chile records six separate indicators for April, with the highlights being unemployment, retail sales, industrial production and copper production.

Mexico’s light schedule will be dominated by the release of the central bank’s quarterly inflation report, followed by a press conference by Governor Victoria Rodriguez.

Banxico earlier this month marked its inflation forecast for the third quarter of 2025, while Wednesday’s report will reveal the bank’s revised GDP forecasts.

On Thursday, Mexico’s April labor market data is due. Initial consensus sees the unemployment rate rising from a record 2.28% posted in March.

–With assistance from Robert Jameson, Piotr Skolimowski, Monique Vanek, and Laura Dillon Kane.

(Updates with summit in Asia section)

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