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Inflation is proving sticky as Fed Chair Powell heads to the hill
Vince Golle and Craig Stirling
Updated 9 min read
(Bloomberg) — US inflation showed scant signs of downward momentum at the start of the year, while healthy job growth undergirded the economy, backing the Federal Reserve’s stance to hold the line on interest rates for now.
Fed Chair Jerome Powell, who offers his semiannual testimony to lawmakers on Tuesday and Wednesday, will likely highlight the resilient economy as a key reason central bankers are in no rush to further cut borrowing costs. With the economy in a good place, Fed officials also have time to assess the impacts of the new Trump administration’s policy changes on trade, immigration and taxes.
Bureau of Labor Statistics figures due on Wednesday, shortly before the second half of Powell’s two-day testimony marathon, are forecast to show the consumer price index excluding food and energy rose 0.3% in January for the fifth time in the last six months.
Compared with a year earlier, core CPI is forecast to have risen 3.1%. While marginally lower than than the annual figure for December, that’s just a 0.2 percentage point decline from the middle of last year.
After sizable declines in 2023 and early 2024, progress toward further disinflation has essentially stalled, just as the job market revved up late last year. On Friday, Labor Department data showed payrolls growth in the three months through January averaged 237,000 — the strongest for any similar period since early 2023.
That helps explain why Fed officials are content to stand pat for the time being after a full percentage point of rate cuts in 2024. Moreover, proposed policies from the Trump administration risk keeping inflation elevated.
What Bloomberg Economics Says:
“Chair Powell has said the Fed needs to see ‘real progress’ on inflation or some labor-market weakness to consider adjusting rates. We think January’s CPI will offer mixed evidence. We expect headline and core CPI inflation both rose 0.3%.”
— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For full analysis, click here
The CPI report, which also includes an annual update of seasonal adjustment factors and a re-weighting of components that go into the index, will be followed on Friday by retail sales for January. Economists estimate another healthy advance in merchant receipts for the month, excluding motor vehicle dealers.
Meanwhile, President Donald Trump’s announcement that he intends to unveil reciprocal tariffs this week will be watched for their potential impact on both the US and the world economy. Brazil’s government is mapping out sectors of the economy that could be affected by a Trump trade war as well as measures the country can adopt in case of tariffs imposed by the US, Folha de S. Paulo reported on Sunday.
For more, read Bloomberg Economics’ full Week Ahead for the US
Looking north, the Bank of Canada’s summary of deliberations will offer insight into the central bank’s move to strip all forward guidance from its rate decision due to the uncertainty of Trump’s threat of tariffs.
Elsewhere, UK growth data, testimony by the European Central Bank president, Indian consumer prices and rate decisions from Russia to Peru will be among the highlights.
Click here for what happened last week, and below is our wrap of what’s coming up in the global economy.
Asia
Data published Sunday showed that China’s consumer inflation accelerated for the first time since August, caused by a burst of household spending around the Lunar New Year holiday even as deflationary pressures persist.
For the remainder of the week, India will be the main focus after the world’s fifth-largest economy unexpectedly reported the weakest growth since the pandemic. Its central bank on Friday delivered the first rate cut in almost five years.
On Wednesday, industrial production figures are likely to show India’s activity slowing in December and consumer prices at the start of 2025 easing to the slowest pace since August. Wholesale prices, though, another measure of inflation, likely accelerated. We’ll also get January trade data on Friday.
Moving east, consumer confidence data is expected early in the week from Indonesia, Vietnam provides figures on vehicle sales, and Malaysia releases the final reading of gross domestic product for the fourth quarter.
The Philippines central bank is forecast to cut its lending rate on Thursday by 25 basis points after a decline in rice prices, which have an outsized influence on the country’s inflation readings.
In South Korea, the unemployment rate for January, set for release on Friday, will show labor market conditions after joblessness surged to the highest level since 2021 in the prior month. Import and export price figures will provide a look at January demand after trade activity declined.
Japanese producer prices likely accelerated on an annual basis and held firm in January from the prior month. On Wednesday, the country also releases preliminary machine tool orders for January, a snapshot of global demand as it’s one of the world’s largest manufacturers of the machines. This measure jumped the most since June in the prior month.
Finally, Australia releases several measures of how the nation is feeling, with January business confidence and February consumer sentiment and inflation expectations. New Zealand publishes credit card retail spending, two year inflation expectations, and manufacturing activity. January food prices are also published.
For more, read Bloomberg Economics’ full Week Ahead for Asia
Europe, Middle East, Africa
Following Thursday’s move by the Bank of England to cut rates and halve its 2025 growth forecast, data in the coming week will reveal the economy’s performance at the end of 2024.
Forecasters are split on how gross domestic product fared in the fourth quarter, with some reckoning on a small contraction of 0.1% while others see either stagnation or even a modicum of growth.
BOE speeches will also draw attention, with Catherine Mann — one of two officials who sought a half-point rate reduction — scheduled for Tuesday. Appearances by Governor Andrew Bailey and policymaker Megan Greene are also on the calendar.
In the euro zone, industrial production on Thursday is a highlight, along with final inflation numbers from Germany and then Spain the following day. A second reading of the region’s GDP is due on Friday.
Taking the lead among European Central Bank speakers will be President Christine Lagarde, who’ll testify to lawmakers on Monday.
Elsewhere in the region, consumer-price data will be a major focus.
In Switzerland, the first inflation reading of 2025, due on Thursday, will set the tone for the next moves of the Swiss National Bank, which lowered borrowing costs by a half point in December. January saw cost cuts for electricity that will weigh on inflation, and the median forecast of economists is for an outcome of just 0.4%, which would be the lowest since 2021.
Norway’s report for consumer price growth on Monday is anticipated to stay stable at 2.2%, and GDP numbers will be published the following day.
Egypt’s central bank on Monday will keep a close eye on inflation. It it continues to slow, in another sign of a firm downward trend, it may enable officials to begin rate cuts in coming months.
In Israel on Friday, data will likely show inflation remained above the 3% ceiling of the central bank’s target range for a seventh straight month. Analysts expect it to quicken to 3.8% after unexpectedly slowing to 3.2% in December.
For more, read Bloomberg Economics’ full Week Ahead for EMEA
A number of central bank decisions are scheduled:
In Namibia on Wednesday, policymakers will likely reduce their rate for a fourth time in a row as inflation sits comfortably at the lower end of their 3%-to-6% target band.
Zambian officials will probably keep their rate at 14%, with price growth expected to start easing as the impact of last year’s drought and a steep depreciation in the kwacha begin dissipating.
Also on Thursday, the monetary authority in nearby Rwanda may lift borrowing costs high enough to return to a positive real rate.
Serbia’s central bank is scheduled for a decision on Thursday too. Officials may resume easing after four months of keeping borrowing costs steady, though steep energy prices remain a source of inflationary pressure.
The Bank of Russia’s first meeting of 2025 will be closely watched on Friday after it surprised analysts with a hold at 21% in December when many expected a hike to restrain inflation running close to 10%.
The same day, in Romania, the central bank is expected to keep rates on hold as political and fiscal risks cloud the inflation outlook.
Latin America
Brazilian and Chilean central banks get the week rolling with surveys of economists’ expectations ahead of Brazil’s January consumer prices report. A one-off electricity bill credit is expected to have slowed inflation last month that should reverse in February.
Mexico-watchers will pounce on any and all demand and output indicators that may point to the risk of recession. December manufacturing, industrial production and January same-store sales are the highlights from Latin America’s No. 2 economy.
Chile’s central bank will post the minutes of its Jan. 28 meeting, at which policymakers kept the key rate unchanged at 5%. Officials are turning more cautious as they ride out a near-term jolt to inflation.
Forgive President Javier Milei if he fails to resist yet another victory lap in his scorched-Earth battle to rein in Argentina’s inflation.
The early consensus for the January 2025 annual print is for something near 67%, down from 117.8% in December and 289.4% last April. That would be the lowest since June 2022 as monthly readings settle in below 3%.
While inflation in Peru’s capital city has slowed below the midpoint of the target range, the core reading - stripped of energy and food costs - remains elevated. With that in mind, the central bank is likely to keep the key rate on hold.
For more, read Bloomberg Economics’ full Week Ahead for Latin America
—With assistance from Paul Wallace, Tony Halpin, Bastian Benrath-Wright, Tom Rees, Katia Dmitrieva, Robert Jameson, Laura Dhillon Kane, Monique Vanek and Piotr Skolimowski.
(Updates with Brazil preparations for trade war in eighth paragraph)
