US Inflation Gains Taper

Weekly Report - 14/05/2017

Consumer Price Growth Ebbs as Energy and Health Costs Slip


Amid heightened expectations that the US Federal Reserve will move to raise rates again in June, the latest figures pertaining to consumer price inflation might prove troublesome in the eyes of some policymakers.  With the impact of energy price rebound gradually fading, both headline and core consumer price growth pulled back in April, complicating the policy outlook.

Last Week

Central bank decisions were heavily watched last week after both New Zealand the United Kingdom delivered the latest monetary policy decisions.  In an unsurprising move, the Reserve Bank of New Zealand left interest rates on hold at 1.75% while promising to keep rates accommodative for the foreseeable future.  Traders anticipate no action until 2018 at the very earliest amid the rockier inflation outlook outlined by RBNZ Governor Graeme Wheeler.  The Bank of England also refrained from adjusting interest rates despite inflationary pressure.  Shifting gears, Chinese fundamentals remain on shaky ground, with the latest trade surplus expansion coming on the heels of a sharp deceleration in export growth which was outpaced by the tapering pace of import expansion.

Consumer prices managed to notch moderate gains, however, producer price growth slid markedly, falling to 6.40% from 7.60% through the end of April, underscoring concerns that government efforts to cool leverage is having an adverse impact on commodity prices.  To cap off the week, the latest US inflation growth slowed modestly, with both headline and core annualized CPI figures pulling back amid the gradual passing of the energy price rally.  The Nasdaq Composite surged to a fresh record to close out the week while the S&P 500 and Dow futures ended the week lower.


The Week Ahead

Data will be predominantly focused on global inflationary trends, gross domestic product, and employment throughout the week ahead with announcements coming from major global economies.  Starting off with the United Kingdom, inflation figures for the month of April will be forthcoming, with expectations for annualized headline consumer prices to climb 2.60% through April alongside core inflation rising to 2.20%.  Apart from inflation, the unemployment reading is likely to show the jobless rate on hold at 4.70%.

Moving eastward, the Euro Area will report its second advance reading of GDP for the first quarter with quarterly and annualized expansion forecast to mirror earlier readings of 0.50% and 1.70% respectively.  Inflation figures due are not projected to differ from the preliminary readings of 1.90% annualized gains in consumer prices and 1.20% increase in core prices.  In Asia, Japan is set to release first quarter GDP data, with quarterly growth projected to advance to 0.40% alongside a pickup to 1.70% on an annualized basis compared to the 1.20% recorded during the third quarter.  Australian labor market fundamentals are not anticipated to change greatly, with unemployment holding fast at 5.90%.  Finally, Canada will round out the week with the consumer price indices on a core and headline basis, both of which are expected to climb.


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