Inflation figures in focus this week

Chris Scicluna
Emily Nicol

Japanese inflation figures in focus again this week, with headline Tokyo CPI rate expected to fall sharply
After Friday’s national CPI figures saw headline and core inflation rise in January to their respective highest levels since the early 1980s, tomorrow will bring BoJ estimates of other measures of underlying price pressures, including the share of CPI basket items with prices rising/falling and trimmed mean CPI rates. But of most interest will be the forward-looking Tokyo CPI numbers for February on Friday. Not least given the government’s household energy subsidies, the headline rate is forecast to have fallen by more than 1ppt from 4.4%Y/Y in January. But when excluding energy and fresh food, inflation is expected to have nudged slightly higher, by 0.1ppt to 3.1%Y/Y, which would be the highest since the late 1980s. This week will bring several other noteworthy releases too, including the January IP and retail sales reports (tomorrow), the BoJ’s quarterly bond market survey (Wednesday), capital spending and consumer spending surveys (Thursday) and labour market figures (Friday).

Euro area flash February CPI and ECB account key focuses this week
A key focus in the euro area this week will also be the flash February inflation estimates on Thursday, which are expected to reveal that the headline HICP rate eased for a fourth consecutive month. We forecast a drop of 0.6ppt to 8.0%Y/Y, which would mark a ten-month low, but the risks to that view are skewed to the upside. The decline will again principally reflect a moderation in energy inflation, with core inflation likely to have eased only very slightly from January’s record high (5.3%Y/Y). The latest euro area PPI inflation data (Friday) should reveal a further easing in price pressures at the factory gate, while unemployment figures (Thursday) are expected to be consistent with ongoing tightness in the labour market. Like last week’s flash PMIs, the Commission’s business and consumer surveys (today) are likely to report a further improvement in conditions in February, while the price expectations indices will likely report a further moderation. This morning will also bring the ECB’s bank lending figures for January.

Beyond the data, Thursday will also bring the publication of the ECB’s account of the February policy-setting meeting, which saw the Governing Council raise rates by 50bps taking the cumulative tightening so far this cycle to 300bps, but also signal its intention to raise interest rates by a further 50bps in March. Given that the Governing Council also judged the inflation outlook to be more balanced, and that policy decisions remained data dependent, the account will be closely watched for further insight into how much additional tightening might be anticipated beyond the current quarter.

PM Sunak’s announcement on revised Brexit deal with NI due today, while UK housing market indicators in focus this week
The main focus in the UK today will be on the anticipated joint press conference between UK Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen, announcing a revised Brexit deal on the Northern Ireland protocol. But while it will reduce trade barriers between Great Britain and Ulster while also clarifying the role of the ECJ, and will reduce the risk of a trade war between the UK and EU, it seems unlikely to provide a catalyst for attracting business investment to the UK given that the large-scale trade barriers between Great Britain and the EU will remain in full. For what it’s worth at least, any attempt to ratify the deal in the UK Parliament will succeed as the main opposition Labour Party has pledged to back it.

In terms of economic data, a relatively light week for UK releases will bring more insights into the housing market, with the Nationwide house price index (Wednesday) expected to show that prices fell for the fifth consecutive month to be below the level a year earlier. Given higher borrowing costs, the BoE’s bank lending numbers for January (also Wednesday) are likely report that the number of mortgage approvals moderated for the fifth successive month, from December’s 2½-year low of 35.6k, while mortgage lending is also likely to have fallen back. Meanwhile, the BRC’s measure of shop price inflation (Wednesday) is expected to remain close to January’s record high of 8%Y/Y, as retailers continue to pass on higher input costs from higher energy bills and rising wages. In terms of surveys, final manufacturing and services PMIs for February will be published on Wednesday and Friday respectively, which are highly likely to align with the renewed optimism reported in the flash release.

US advance orders and goods trade numbers and ISM surveys due
In the US, the week’s data calendar kicks off today with the advance durable goods figures for January, which are expected to report a notable correction in the aircraft component following the surge in December (a combined increase of 88.6% in commercial and defence-related aircraft), while other manufacturing orders are expected to have moved broadly sideways. The advance goods trade numbers (tomorrow) are likely to show that exports maintained a downwards trend in January, with imports expected to have fallen back too. There are various sentiment indicators due this week, including the Dallas Fed manufacturing activity index (today), Conference Board consumer confidence survey (tomorrow), and most notably the manufacturing and services ISMs (Wednesday and Friday respectively). The ISMs are expected to report a loss of momentum in February, with a third successive contraction reading for the manufacturing production index. But while the headline services activity index likely slipped back in February, it is expected to remain consistent with a respectable pace of growth. Meanwhile, housing market indicators will include pending home sales figures (today), FHFA and S&P CoreLogic home price indices (tomorrow) and construction spending numbers (Wednesday). 

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