- UK headline CPI projected to dip back to zero again for the annual comparison
- Hefty slide expected for Germany’s ZEW expectations survey data for September
- US retail spending growth in August is on track to be moderate
Several key economic reports are scheduled for Tuesday, including the monthly update on consumer inflation in the UK. Later, we’ll see this month’s ZEW survey numbers for Germany, followed by the August update on US retail sales.
UK: Consumer Price Index (0830 GMT) Headline inflation for the UK is expected to tick down to a zero annual rate in today’s update for August, but one of the members of the Bank of England’s Monetary Policy Committee advised this week that rates should rise “relatively soon”.
Writing in the Scotland on Sunday newspaper, Martin Weale reasoned that “with wage growth remaining firm, the tightening labour market means that inflation is likely to rise above target in two to three years’ time. Policy needs to be set with reference to this, rather than the current rate of inflation. As a result, it seems likely to me that the bank rate will need to rise relatively soon.”
It’ll be interesting to see how that argument fares after the release of today’s update of the consumer price index (CPI) for August. The crowd’s looking for the annual pace of CPI to slip back to zero.
Core inflation, however, is still moderately in the black - rising 0.8% year-on-year through July - and so some of Weale’s logic may shine or stumble depending on how this measure of pricing pressure compares in today’s release. Central bankers, after all, tend to put more stock in core CPI data, which has a history of offering a more reliable measure of the inflation’s trend.
Meanwhile, wage growth is still advancing at well above inflation rates, delivering a relatively sizable advantage in real terms for workers. But now the question is whether the disinflationary bias of late is starting to weigh on wage growth too?
The modest reversal in the pace of total pay in June hints at such a possibility. A repeat performance may show up in the next labour market report if today’s inflation data delivers a downside surprise. In that case, arguing in favour of squeezing monetary policy “relatively soon” isn't about to get any easier in the court of public opinion.
Source: UK Office for National Statistics
Germany: ZEW Economic Sentiment (0900 GMT) Yesterday’s July data on industrial output for the Eurozone was surprisingly firm. Eurostat reported that production increased 0.6% against the previous month - double the gain that consensus forecast was looking for. More importantly, the pace picked up in annual terms: output advanced 1.9% in July against the year-earlier level, marking the strongest rate since March.
The question, of course, is how much blowback to expect from China’s slowdown and the headwinds blowing in emerging markets generally in the months ahead? In other words, is Europe’s export machine going to take a hit?
If so, what does that mean for the broader economy and the still-modest recovery? It’s too soon to know for sure, although today’s sentiment update for the currency bloc’s main economy may bring a clue.
Unfortunately, today’s September release of ZEW’s survey of financial analysts is expected to point to another round of managing expectations down. The consensus forecast sees the expectations component taking a sharp tumble to 15 in September against 25 in the previous month, according to Econoday.com. That would leave the expectations index at its lowest level since last November - a descent that would wipe out virtually all of the rebound made this year.
ZEW data is generally seen as driven by events in the financial markets, although the expectations slice of the data has a history of foreshadowing changes in the macro-focused IFO numbers for Germany - a monthly report that's due next week. Based on what the crowd’s looking for in today’s ZEW release, the recent slide in Germany’s equity market may be infecting the macro outlook as well.
Source: ZEW, CES ifo Group
US: Retail Sales (1230 GMT) Today’s update on spending may have a big influence on the Federal Reserve Bank’s decision on whether to hike interest rates when the bank’s policy meeting concludes on Thursday. Although the crowd’s looking for a moderate rise in retail sales for August, the 0.3% increase against the previous month is still a relatively soft number and one that suggests that the recent slowdown in consumption endures.
Retail spending is ahead by 2.4% in annual terms through July, but that’s well below the 3%-5% year-on-year pace that prevailed through this past January. Let’s assume that the 0.3% monthly gain via the consensus forecast holds in today’s August report. That translates into a fairly tepid 2.1% year-on-year increase - a deceleration from July and close to the lowest levels in recent history.
In short, today’s data on retail spending isn’t expected to provide much support for raising rates. Economists think that consumption will continue to grow, but at a subdued pace.
Disclosure: Originally published at Saxo Bank TradingFloor.com