US inflation is set to reassure a labor market-focused Fed

(Bloomberg) — U.S. inflation likely moderated at the end of the third quarter, reassuring a Federal Reserve that is shifting its policy focus more toward protecting the labor market.

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The consumer price index rose 0.1% in September, the smallest gain in three months. Compared with a year ago, CPI likely rose 2.3%, the sixth-straight recession and the tamest in early 2021. The Bureau of Labor Statistics will issue its CPI report on Thursday.

The gauge excluding the volatile food and energy sectors, which provides a better view of underlying inflation, is projected to rise 0.2% from a month ago and 3.2% from September 2023.

Given the surprisingly strong job growth for September reported on Friday, the gradual slowdown in inflation suggests policymakers will opt for a smaller interest rate cut when they next meet on Nov. 6-7.

Fed Chair Jerome Powell said estimates issued by officials alongside their September rate decision are pointing to a quarter-point rate cut at the final two meetings of the year.

The CPI and producer price index are used to inform the Fed's preferred inflation measure, the Personal Consumer Expenditure Price Index, which is set for release later this month.

What Bloomberg Economics Says:

“We expect a softer headline CPI in September, albeit a stronger core reading. Mapped into PCE inflation — the Fed-preferred price gauge — core inflation has likely increased at a pace consistent with the 2% target. Overall, we don't think the report will do much to affect the FOMC's confidence that inflation is on a sustained downward trend.”

—Anna Wang, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, Economist. For full analysis, click here

Friday's report on producer prices – a measure of inflationary pressures faced by businesses – is also expected to show lower inflation. On the same day, the University of Michigan released its preliminary October consumer sentiment index. The Fed will also release the minutes of the central bank's September meeting on Wednesday.

Neil Kashkari, Alberto Musallem, Adriana Kugler, Raphael Bostick and Laurie Logan are among an array of Fed officials speaking during the week.

In Canada, officials will release the final jobs report ahead of the next Bank of Canada rate decision, an important input for Governor Tiff McCollum, who expects to see further easing of the labor market. The central bank will also release surveys of business and consumer expectations for economic growth and inflation.

Elsewhere, central banks from New Zealand to South Korea may cut rates, France will release its budget and the European Central Bank will release the minutes of its September policy meeting.

Click here for what happened last week, and our wrap-up below of what's coming to the global economy.

Asia

It's a big week for monetary policy in Asia, with two central banks likely to cut rates and another inch closer to doing so.

The Reserve Bank of New Zealand is expected to follow its August pivot to an easy cycle by trimming rates by half a percentage point, to 4.75%, when the board meets on Wednesday, as weak wages data fueled labor market concerns.

The Bank of Korea is likely to trim its benchmark by a quarter point on Friday after inflation fell to the slowest pace in more than three years, with a decision on whether housing market conditions have cooled enough.

The Reserve Bank of India is seen keeping its repo rate and cash reserve ratio steady, with many economists looking for a quarter-point cut in the repo rate later in the year. And Kazakhstan's central bank will decide on Friday whether to resume its easing campaign.

On Tuesday, the Reserve Bank of Australia released minutes from its September meeting that may shed light on the discussions that led to its dreaded hold, and the RBA's No. 2, Andrew Houser, spoke on the same day.

Japan gets wage figures and household spending data, both of which are of interest to the newly installed government ahead of a general election at the end of the month.

Singapore is set to report third-quarter gross domestic product sometime between Thursday and Monday – with consensus estimates looking for an acceleration in year-on-year growth.

Data released on Sunday showed that Vietnam's economic growth accelerated unexpectedly in the last quarter, after a surge in manufacturing and exports before a super typhoon in September took a heavy toll, and farm and factory production halted.

Consumer inflation data comes from Thailand and Taiwan, while the Philippines and Taiwan release trade figures.

Europe, Middle East, Africa

Following the release of factory orders on Monday and industrial production on Tuesday, Germany's manufacturing woes will be in focus on Wednesday, following the official economic forecast

According to people familiar with the matter, officials are ready to give up hope of achieving any expansion this year. Sueddeutsche Zeitung reported over the weekend that Berlin now expects a 0.2% contraction for 2024.

In France, Prime Minister Michel Bernier's government is set to present its 2025 budget bill on Thursday, at a time when the country is struggling to meet its deficit. Fitch Ratings has scheduled a possible release of an assessment on the country after the market closes on Friday.

For the European Central Bank, the October 17 decision is the final day for officials to speak publicly on monetary policy before a blackout period begins, where a rate cut appears almost certain.

Chief economist Philip Lane, Bundesbank President Joachim Nagel and Bank of France Governor Francois Villeroy de Galhau are scheduled to attend. An account of the previous meeting will be published on Thursday, providing possible clues to the upcoming verdict.

In the UK, meanwhile, Friday's GDP data will point to the health of the economy in August, in the wake of Bank of England Governor Andrew Bailey's comments that opened the door to more aggressive easing.

The two Riksbank officials are scheduled to speak after the Swedish central bank cut its third rate in September. Sweden's monthly growth index will be released on Thursday.

Turning south, Egypt's authorities expect inflation to pick up again in September after a slight acceleration the previous month. The last reading was 26%, slightly below the central bank's base rate of 27.25%.

Three central bank decisions are set around this region:

• On Tuesday, Kenya's Monetary Policy Committee cut its key rate by a quarter point to 12.25% for the second consecutive meeting. Inflation is expected to remain below its 5% target in the near term after falling to a 12-year low in September.

• On Wednesday, Israeli officials are likely to hold their rate again at 4.5%, even after peers initiate or continue the easy cycle. The war against Hamas in Gaza and escalating conflicts with Hezbollah and Iran are weighing on the shekel, which is near a two-month low. Moody's and S&P recently downgraded the country's credit rating.

• Serbia's central bank made its monthly decision on Thursday, likely continuing monetary easing after a quarter-point cut in September.

Latin America

By the end of the week, third-quarter consumer price data will be in the books for five of Latin America's major inflation-targeting economies.

Lower readings can be expected in Chile, Colombia and Mexico, while the incredible heat of the Brazilian economy and prices are likely to continue in September. All four central banks target inflation at 3%.

In Brazil, alongside the central bank's expectations survey posted on Monday, the August retail sales report may show some cooling from a faster set of 2024 readings.

The minutes of Banxico's September 26 meeting will be highlighted from Mexico. Policymakers sounded an ambivalent tone on forward guidance after cutting rates by a second-straight 25 basis points to 10.5% in their post-decision statement.

In Peru, monthly inflation in September and a below-target annual print of 1.78% likely gave the green light for a third straight central bank rate cut from the current 5.25%.

After quickly reining in overheated consumer price increases, Argentine President Javier Milli's inflation battle has stalled, with a consistent monthly print near 4%. Economists surveyed by the central bank see little slowdown under the current policy mix.

–With assistance from Robert Jameson, Laura Dhillon Kane, Piotr Skolimowski, Monique Vanek, and Paul Wallace.

(Updated with Germany in the EMEA section)

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