US inflation is poised to soothe a labor-focused Fed

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

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The consumer price index is seen rising 0.1 percent in September, the smallest gain in three months. Compared to a year earlier, the CPI likely rose 2.3 percent, the sixth straight slowdown and the weakest since early 2021. The Bureau of Labor Statistics will issue its CPI report on Thursday.

The gauge, excluding the volatile food and energy categories, which provide a better picture of underlying inflation, is expected to rise 0.2% from a month earlier and 3.2% from September 2023.

Following the surprisingly strong September jobs growth reported on Friday, the gradual slowdown in inflation suggests policymakers will opt for a smaller interest rate cut at their next meeting on November 6-7.

Fed Chairman Jerome Powell said projections issued by officials with their September rate decision point to quarter-point rate cuts at the final two meetings of the year.

The CPI and the producer price index are used to inform the Fed’s preferred measure of inflation, the personal consumption expenditure price index, due out later this month.

What Bloomberg Economics Says:

“We expect an overall low CPI in September, albeit a more robust core reading. Charted in PCE inflation – the Fed’s preferred price gauge – core inflation likely rose at a pace consistent with the 2% target. Overall, we do not think the report will greatly influence the FOMC’s confidence that inflation is on a sustainable downward trend.”

—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou, and Chris G. Collins, Economists. For a full review, click here

Friday’s report on producer prices – a gauge of inflationary pressures facing businesses – is also expected to show weaker inflation. On the same day, the University of Michigan releases its preliminary index of consumer sentiment for October. The Fed will also release the minutes of the central bank’s September meeting on Wednesday.

Neel Kashkari, Alberto Musalem, Adriana Kugler, Raphael Bostic and Lorie Logan are among a number of Fed officials speaking next week.

In Canada, officials will release the final jobs report ahead of the Bank of Canada’s next rate decision, a crucial input for Governor Tiff Macklem, who expects to see further weakening in the labor market. The central bank will also publish surveys of business and consumer expectations for economic growth and inflation.

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

Click here for what happened in the past week, and below is our list of what’s happening in the global economy.

Asia

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

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

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

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

On Tuesday, the Reserve Bank of Australia publishes the minutes of its September meeting, which could shed light on the deliberations that led to its hawkish rule, and RBA No. 2 Andrew Hauser speaks on the same day.

Japan is receiving wage statistics and household spending data, both of interest to the newly installed government ahead of general elections at the end of the month.

Singapore becomes the first Asian nation to report third-quarter gross domestic product — some time between Thursday and Monday — with the consensus estimate pointing to an acceleration in year-on-year growth.

Consumer inflation data is from Thailand and Taiwan, while the Philippines and Taiwan publish trade figures.

Europe, Middle East, Africa

Germany’s manufacturing woes will come into focus with the release of factory orders on Monday and industrial production on Tuesday, followed by government economic forecasts on Wednesday.

Officials are ready to give up hope of any expansion this year, according to people familiar with the matter.

In France, Prime Minister Michel Barnier’s government is set to present its 2025 budget bill on Thursday as the country struggles to tame its deficit. Fitch Ratings has scheduled a possible release of a rating on the country for after the market closes on Friday.

For the European Central Bank, Wednesday is the last day officials will speak publicly about monetary policy before the start of a stand-off period ahead of the Oct. 17 decision, when an interest rate cut looks almost certain.

Chief Economist Philip Lane, Bundesbank President Joachim Nagel and Bank of France Governor Francois Villeroy de Galhau are among those scheduled to make appearances. A report of the previous meeting will be published on Thursday, providing possible clues about the future ruling.

Meanwhile, in Britain, following remarks by Bank of England Governor Andrew Bailey that opened the door to more aggressive easing, Friday’s GDP data will indicate the health of the economy in August.

Two Riksbank officials are scheduled to speak after the Swedish central bank offered a third rate cut in September. Sweden’s monthly growth indicator will be released on Thursday.

Heading south, authorities in Egypt will be hoping that inflation resumed its slowdown in September after a slight acceleration the previous month. The latest reading was 26%, just below the central bank’s base rate of 27.25%.

Three central bank decisions are scheduled in the region:

• On Tuesday, Kenya’s monetary policy committee is set to cut its key rate for the second consecutive meeting by a quarter point to 12.25 percent. Inflation is expected to remain below the 5% target in the near term after slowing to a 12-year low in September.

• On Wednesday, Israeli officials are likely to keep the rate on hold at 4.5 percent, even as peers begin or continue easing cycles. 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. The country’s credit rating was recently downgraded by Moody’s and S&P.

• Serbia’s central bank makes its monthly decision on Thursday, possibly continuing monetary easing after a quarter-point cut in September.

latin america

By the end of the week, third-quarter consumer price data for all five major Latin American inflation-targeted economies will be available.

Lower readings can be expected in Chile, Colombia and Mexico, while Brazil’s unmistakable economy and price warming likely continued into September. All four central banks are targeting 3% inflation.

In Brazil, apart from the central bank expectations survey released on Monday, the August retail sales report may show a slight decline from what was a brisk set of readings in 2024.

The minutes of Banxico’s September 26 meeting will be the highlight in Mexico. Policymakers struck a dovish tone in the forward guidance of their post-decision statement, after a second consecutive rate cut of 25 basis points to 10.5%.

In Peru, month-on-month deflation in September and a below-target annual print of 1.78% likely mean a third straight cut in the central bank’s rate from the current 5.25%.

After quickly reining in overheated increases in consumer prices, Argentine President Javier Milea’s fight against inflation appears stalled, with successive monthly runs close to 4%. Economists polled by the central bank see a modest slowdown amid the current policy mix.

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

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