Attention on inflation data out of Japan and euro area

Emily Nicol

Japanese inflation, IP, retail sales and labour market numbers due at the end of the week
It will be a busy end to the week for top-tier Japanese economic releases, including the latest inflation, industrial production, retail sales and labour market numbers. In particular, the Tokyo CPI figures are expected to report a further modest easing in the headline inflation rate, by 0.2ppt to 3.2%Y/Y. But when excluding food and energy, core inflation might well have ticked slightly higher to the strongest rate since 2015. Tomorrow will bring the BoJ’s estimates of underlying price pressures for February, including the trimmed mean CPI estimate and share of the basket with prices rising. With respect to retail sales, not least reflecting the ongoing rise in prices of core goods, the value of sales is expected to have increased for the third consecutive month in February, to leave them up almost 6%Y/Y. Amid stronger demand and the recent recovery in tourism, the unemployment rate and job-to-applicant ratio are likely to imply a relatively tight labour market. Meanwhile, the latest IP numbers are likely to report a pickup in manufacturing output last month, albeit the forecast increase of 2½%M/M would reverse just half the drop recorded in January.

Euro area flash March inflation the highlight in the coming week
The euro area data highlight this week also comes on Friday, in the form of flash inflation for March. We expect the annual HICP rate to ease for the fifth consecutive month, and by 1½ppts to a fourteen-month low of 7.0%Y/Y. This will, however, reflect a further substantial moderation in energy inflation, due to base effects following the spike in prices after the Russian invasion of Ukraine a year ago. Indeed, we expect core inflation to have ticked higher this month, to a new record high of 5.8%Y/Y, due to a further acceleration in core goods inflation and sticky services inflation. Other euro area releases of significance to the ECB’s reaction function include February bank lending data later this morning and unemployment figures on Friday. Meanwhile, following last Friday’s flash PMIs, the European Commission’s business and consumer sentiment indices (Thursday) are likely to report a further moderation in consumer and business selling price expectations in March, as well as a pickup in economic recovery momentum despite the recent increase in risk aversion. The German ifo business survey results (today) will offer further guidance.

UK bank lending numbers likely to flag the impact of higher borrowing costs
In terms of UK economic releases, the BoE’s lending figures for March (Wednesday) will be watched closely and likely to reveal a further weakening trend in mortgage lending and approvals, while consumer credit figures will be analysed for whether higher borrowing costs are restraining demand for credit amid the cost of living crisis. Meanwhile, following surprisingly strong retail sales data in February, today’s CBI distributive trades report might well imply some payback in March as high costs and squeezed household incomes continue to weigh on the retail sector. Indeed, the March shop price index from the BRC (tomorrow), is expected to remain high, after accelerating to another record high in February. Friday will bring final Q4 GDP numbers, along with balance of payments data for Q4. Separately, Wednesday will also see the BoE publish its March Financial Policy Summary and Record, with discussions on the latest banking sector instability to be closely watched. In terms of BoE speak, Governor Bailey will give a lecture in London this evening and testify in Parliament on issues related to SVB tomorrow.

Personal spending and income figures and deflators the data focus in the US
In the US, the back end of the week brings arguably the data highlight of the week, with personal income and spending figures, with the associated closely watched deflators. Underwhelming results for hours worked and average hourly earnings suggest only a modest increase in wages and salaries in February after a jump in January. On the spending side, an easing in sales of motor vehicles suggests a decline in outlays for durable goods, and a pause in retail activity after a burst in January suggests a dip in outlays for nondurable items. But service spending has been well maintained and could nudge total outlays into positive territory. And the CPI release suggest sharp increases in the personal consumption expenditure price indices. Ahead of this will bring advance goods trade numbers (tomorrow), along with various confidence indicators for March including the Dallas Fed activity indices (today), Richmond Fed indices (tomorrow) and the Conference Board consumer confidence (tomorrow). Meanwhile, housing market releases include the FHFA and S&P Core-Logic home price indices for January (tomorrow) and February pending home sales figures (Wednesday). 

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