Has the Fed’s preferred inflation measure continued to decline?

Has inflation slowed US consumer spending?

EY-Parthenon chief economist Gregory Daco said the United States has already peaked in inflation, but the important factor for consumers will be the rate at which price growth slows and the level which she will eventually achieve.

The core personal consumption expenditure price index, a measure that excludes food and energy prices, began to decline. Core PCE rose 5.2% year-over-year in March, compared with a 5.3% increase in February. Economists expect a further decline to a 4.9% rate of increase in April data, which is released on Friday. The PCE is released after other inflation reports, including the Consumer Price Index, but as the Federal Reserve’s preferred inflation measure, it is closely watched by investors.

Oren Klachkin, chief US economist at Oxford Economics, will also be watching the consumer spending figures included in the PCE data to see if there is a shift from goods to services. “We actually want to see a rotation into services,” he said. “It means we are back to normal after more than two years of dealing with Covid.”

Daco said a pullback in consumption of goods was expected, but a drop in spending on services, particularly in leisure categories, would indicate the economy was more fragile than expected.

Recent quarterly results show that spending on goods could slow. Walmart slashed its full-year profit forecast last Tuesday, and Target reported a 52% drop in net profit a day later. Jaren Kerr

Will Turkey’s central bank act to stabilize the lira?

The Turkish lira has been back in choppy waters in recent weeks, losing 16% of its value against the dollar this year amid soaring inflation and a tough global economic outlook. But this does not mean that the central bank of Turkey will act.

Members of its monetary policy committee will almost certainly choose to keep the key rate at 14% on Thursday.

The bank – which is effectively led by President Recep Tayyip Erdoğan, who has unconventional views on monetary policy – ​​has stayed on the sidelines even as inflation hit 14 times its official 5% target, hitting nearly 70% last month.

As deeply negative real interest rates put pressure on the currency, authorities sought to keep the lira stable using a series of unconventional measures. They include a government-backed savings program that seeks to entice Turkish residents to hold liras by promising to protect them against exchange rate losses. The central bank has also increasingly pressured businesses not to buy foreign currency – and urged commercial banks not to sell it to them.

But analysts warn that these tactics could reach their limits. Per Hammarlund, chief emerging markets strategist at Sweden’s SEB bank, said a “perfect storm” was brewing for the lira with rising inflation, a growing current account deficit, high global energy prices and risk. of a fall in vital export earnings as growth slows around the world.

“A rate hike and a credible commitment to lower inflation would stabilize the pound more permanently,” he wrote in a recent note to clients. “But with President Erdoğan firmly opposed to hikes, it will only be a last resort.” Laure Pitel

How is business activity doing in the euro zone?

Business activity has held steady in the euro area so far this year. But economists fear that could change soon if the fallout from Russia’s invasion of Ukraine and China’s strict coronavirus lockdowns weigh more heavily on output.

A key test will come Tuesday from S&P Global’s latest survey of purchasing managers, which will be watched by European Central Bank policymakers as they assess when to stop buying more bonds and start rising. interest rates.

The survey is expected to show business activity in the euro zone remained flat in May compared with the previous month, with the composite PMI slipping 0.5 points to 55.3, according to a survey of economists by Reuters.

Services companies are expected to report a slight increase in activity on the back of the lifting of coronavirus restrictions, offsetting slower growth among manufacturers due to fallout from the war in Ukraine and supply chain disruptions.

Annalisa Piazza, an analyst at MFS Investment Management, said the coronavirus lockdowns in China would hit eurozone industry in two ways. “It will lead to more supply constraints and it will further slow down production, mainly of intermediate industrial goods,” Piazza said. “But for eurozone exports, it is also certain that there will be an immediate impact.”

German manufacturers are particularly vulnerable to such headwinds. Investors will learn more about their outlook on Monday when Munich’s Ifo Institute releases its latest business survey results, which are expected to show falling sentiment as expectations fall to a two-year low. Martin Arnold

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