Inflation & wage data in focus

10 March 2025

Emily Nicol

Overview:

At the start of the week, markets continue to respond to politics and geopolitics, with Bunds a little firmer as German parties negotiate over how to boost defence spending and investors anticipating the imposition of  Trump’s 25% tariff hike on imports of steel and aluminium due to take effect on Wednesday. After Chinese inflation surprised to the downside over the weekend with core CPI negative for the first time in four years, this week’s data highlights include US price data ahead of the Fed’s policy decision on 19 March:

*  After jumping at the start of the year, the increase in US consumer prices in February (Wednesday) is expected by Daiwa America economists to be better behaved (0.3%M/M), with upward pressures on food – not least eggs – to be offset by a softer services component. This would allow the annual headline and core CPI rates to ease back 0.1ppt to 2.9%Y/Y and 3.2%Y/Y respectively, with the latter matching the lowest since March 2021. Producer prices (Thursday) and the University of Michigan consumer survey (Friday) will be watched, the latter for signs of a de-anchoring of inflation expectations.

*  The rebound in German industrial output (2.0%M/M) – admittedly from an extremely low base – bodes well for the euro area industrial production figure in January (Thursday). But while President Lagarde’s keynote speech (Wednesday) will reiterate the ECB’s non-committal stance with respect to future easing in the current uncertain economic environment, the Bank’s updated wage trackers (due the same day) will likely point to a steady moderation in pay growth over the remainder of the year.

*  In the UK, ahead of the BoE’s rate decision next week, monthly GDP figures for January (Friday) might well report some payback from a surge at the end of 2024, but surprisingly strong retail sales will provide some support. Given the positive carryover from December, our economists expect growth on a three-month basis to print its best rate in six months (0.2%3M/3M).

*  After Japanese regular pay growth rose to the strongest since 1992 (3.1%Y/Y) – a rate considered to be consistent with sustaining inflation at the 2% target – Rengo union confederation will announce (Friday) its first estimate of this year’s spring wage settlement. Updated GDP figures (Tuesday) are likely to confirm solid growth of 0.7%Q/Q in Q4 despite a possible downwards revision to capex growth, similarly compatible with a further BoJ rate hike in due course. But like today’s economy watcher survey, we expect the MoF’s business sentiment survey (Tuesday) to flag downside risks to near-term growth amid heightened global uncertainty.

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