Flash inflation, euro business surveys & Fed minutes due this week

25 November 2024

Emily Nicol
Euro area: Flash inflation to rise to highest since July due to base effects in energy and core components

The highlight in the euro area will be the flash inflation estimates for November on Friday. As favourable energy base effects continue to fade in November, we expect headline inflation to increase again, by a further 0.3ppt to 2.3%Y/Y, which would be the highest since July. Moreover, base effects in the non-energy industrial goods and services components due to an unusually large drop in prices a year ago will also push core inflation higher, with our expectation for an increase of 0.2ppt to 2.9%Y/Y being a touch above the Bloomberg consensus. Flash inflation estimates from Germany, Spain, Belgium and Ireland (Thursday) will also provide further insight into the euro area release.

After last week’s downbeat flash PMIs, the Commission’s comprehensive economic sentiment survey (Thursday) will likely also reflect heightened political uncertainties in Germany, France and the US. Indeed, the German ifo survey – just published – saw the current business conditions index drop to the lowest since the global financial crisis outside of the initial Covid-19 slump, amid a deterioration in services sentiment and greater pessimism among construction firms. Meanwhile, after the downside surprise in last week’s Commission flash consumer confidence indicator to a five-month low, the German GfK and French INSEE releases will provide further insight (Wednesday). In addition, the ECB’s monetary figures (Thursday) might well report a further very modest recovery in bank lending as less restrictive monetary policy starts to feed through to lower borrowing costs.

US: PCE deflator and FOMC minutes in focus ahead of Thanksgiving holiday

Ahead of the Thanksgiving holiday, a key release in the US will be the personal spending and income report for October on Wednesday. In terms of the price indices, based on the CPI and PPI results, the headline PCE deflator is expected to rise 0.2%M/M, which would take the annual rate up just 0.2ppt to 2.3%Y/Y, only a faction about the inflation target and still the second-lowest reading since February 2021. Meanwhile, the core PCE index – the Fed’s preferred gauge of inflation – is expected to show prices rising 0.3%M/M for a second successive month, taking the annual rate up 0.1ppt to a six-month high of 2.8%Y/Y. Meanwhile, tomorrow will bring the minutes from the Fed’s most recent FOMC meeting on 7 December, at which policymakers unanimously cut the FFR target range by 25bps to 4.50-4.75%, while Powell insisted in the press conference that “over the near term, the election will have no effects on our policy decisions”.

A number of November sentiment surveys are due this week, including the Conference Board’s consumer confidence indices (tomorrow), which are expected to report a further boost to sentiment amid a still favourable jobs market and solid wage growth. Meanwhile, the updated estimate of Q3 GDP (Wednesday) is expected to leave growth unrevised at 2.8%Q/Q annualised, with household consumption a key driver of growth (2.5%Q/Q ann.), while net trade remained a notable drag on growth (-0.6ppt). Advance releases of goods trade and durable goods orders (both also due Wednesday) will provide an update on economic activity at the start of Q4.

Japan: Tokyo CPI set to be boosted by temporary factors related to energy subsidies

A key focus on Friday will be the Tokyo inflation figures for November, with the headline CPI rate expected to jump back above target – up 0.4ppt to a three-month high of 2.2%Y/Y – due to an upwards impulse from utility prices due to the cut in government energy subsidies and higher fresh food prices. When excluding fresh foods, core inflation is expected to rise 0.2ppt to 2.0%Y/Y. But while the increase in the BoJ’s preferred core measure (excluding fresh foods and energy) will be smaller, it is still expected to rise to an eight-month high of 1.9%Y/Y. Admittedly, the internationally comparable measure of core inflation – excluding all food and energy – will remain much softer, only a fraction above 1%Y/Y.

Friday will also bring October figures for industrial output, retail sales and unemployment. Manufacturing production is expected to have recorded a further recovery last month (4.0%M/M) following the weakness over the summer caused by disruption from the typhoon and mega earthquake warning. Retail sales are also expected to have increased modestly following a sharp decline in September related in part to lower spending on clothing and motor vehicles.

UK: Policymakers appearances at BoE Watchers’ Conference in focus at the start of the week

The main event in the UK today is the BoE Watchers’ Conference in London. Like Deputy Governor Ramsden last week, comments from Deputy Governor Lombardelli this morning supported market pricing that the BoE will continue to ease policy gradually at about 25bps each quarter. In terms of economic data, the sole non-survey-based release this week will be October’s money and credit data (Friday), which in recent months have noted a pick-up in mortgage lending. And while demand for credit more broadly is expected to edge up over Q4, as gradual cuts in Bank Rate feed through to lower borrowing rates, heightened caution ahead of the government’s Budget announcement might well have seen a dip in mortgage approvals from September’s more than two-year high (65.7k). Meanwhile, the BRC shop price survey (tomorrow) will provide an update of retailers’ pricing trends in November, while the prospect of ongoing discounting ahead of the festive season could also reflect positively on the CBI’s reported retail sales measure (also due tomorrow).

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