Will US consumer price growth have cooled again in December?

Investors and economists are betting that the Federal Reserve’s aggressive monetary campaign will have slowed consumer price growth once again in December.

The Bureau of Labor Statistics on Thursday will release its consumer price index data for the month before, with market participants surveyed by Refinitiv expecting prices to have risen 6.6 per cent year-on-year in December, down from an increase of 7.1 per cent in November. That would mark the slowest pace since October 2021. Month over month, consumer prices are expected to have remained flat, compared with an increase of 0.1 per cent in November.

The drop is expected to have been driven in part by a fall in energy prices, which included gasoline that was 13 per cent lower in December, said Jon Hill, a strategist at Barclays.

Core CPI, which strips out the volatile food and energy components, is expected to have risen 5.7 per cent year-on-year, versus 6 per cent in November.

These moves would come at the end of a year in which the Fed lifted interest rates from near zero to a range of 4.25-4.5 per cent. The effects of the historic pace of increases were somewhat slow to take hold: inflation peaked in June, but continued to run above 8 per cent until September.

December’s inflation data will be a crucial piece of information for the Fed‘s two-day meeting beginning on January 31 and could help decide whether the central bank will lift interest rates by 0.5 percentage points, matching last month’s increase, or slow the pace of hikes further. Kate Duguid

What will industrial production data reveal about Europe’s manufacturing sector?

Last year was tough for many European manufacturers and conditions were unlikely to have improved much in November, when industrial production was expected to suffer its second consecutive monthly decline.

The energy crisis caused by Russia’s invasion of Ukraine on top of continued disruption to global supply chains and weakening economic growth all contributed to make 2022 a difficult one for many industrial groups in Europe.

Economists polled by Reuters expect overall eurozone industrial production to have fallen 0.2 per cent when those figures are released on Friday. Earlier in the week, the national figures for Germany, France and Italy — the bloc’s three largest economies — are also expected to reveal slight contractions in industrial output.

The gloomy outlook for the German industrial sector was underlined last week, when factory order data for November revealed a much bigger than expected drop of 5.3 per cent from the previous month.

Economists, however, believe it will take some time before the sharp drop in demand hits production because of the large backlogs of orders built up since the coronavirus pandemic hit in 2020. Underlining this, turnover in German manufacturing remained buoyant in November, rising 2.1 per cent.

“Weaker demand is only likely to have a muted impact on production,” said Ralph Solveen, an economist at German bank Commerzbank. “After all, most industrial companies have a considerable backlog of orders, which they can now work off.” Martin Arnold

Has the UK economy contracted further?

The UK economy is expected to have continued to struggle at the end of last year under the weight of high inflation and rising borrowing costs.

Economists polled by Reuters forecast UK GDP to have slipped 0.3 per cent between October and November, when data is released on Friday.

Sandra Horsfield, economist at Investec, noted that the UK economy has trended lower since May 2022, when inflation started surging. The government has offered help to households and businesses facing a cost of living crisis, which may have supported the economy in November.

The reversal from November onwards of the national insurance hike that took effect in April 2022, which left post-tax pay cheques somewhat higher than in October, should also have supported consumers’ ability to spend. Moreover, power generation looks likely to have rebounded to some extent after weakness in October, as higher than normal wind speeds should have fed through to industrial production.

But Horsfield said those factors and other government help have absorbed only part of the hit.

“Add to this the restraining impact on activity of higher interest rates, and the likelihood is that GDP will trend lower for some time further — all the more so at a time when widespread [industrial] strikes cause some additional disruption,” said Horsfield.

The economy contracted in the third quarter of 2022 and November data will provide more information about the final quarter. Many economists expect the UK to have already entered a recession that will last for most of 2023.

“The silver lining to this particular cloud is that we expect it to help in quelling price pressures,” said Horsfield. Valentina Romei

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