By Craig Stirling
The European Central Bank will almost certainly deliver a second interest-rate hike in the coming week, throwing the focus onto how open officials are to a third step later in the year.
In a move set to reaffirm the ECB as the most hawkish central bank among the Group of Seven, a quarter-point increase on Thursday has been widely signaled, suggesting the debate is already shifting to the need for another one.
Recent data showed euro-zone inflation jumped in August to 3.3%, the fastest pace in almost three years and noticeably above the 2% target.
In contrast to the US Federal Reserve, whose relatively sanguine view on inflation may be tested by consumer-price numbers in the coming week, the ECB has been unambiguous about the need to tighten pre-emptively. Evidence of resilient growth may bolster that view.
Recent euro-zone inflation data offered some comfort, though, with an unexpected slowdown in the so-called core measure. But officials seem in no mood to take chances, not least after criticism for their delayed reaction to the 2022 cost-of-living shock.
The debate over a third hike may prove finely balanced.While Gediminas Simkus, Lithuania’s central bank governor, speculated that a September hike won’t be enough, Bundesbank chief Joachim Nagel was wary in offering clues.
Investors are largely pricing in a hike for December, even as most economists have suggested Thursday’s tightening will be the last for now. That consensus is showing signs of shifting, though, with analysts at JPMorgan, Societe Generale and BNP Paribas all changing their forecasts in recent days to predict such a step.
What Bloomberg Economics Says:
“With a hike this week having been widely telegraphed by the Governing Council already, its hints about the next move may garner the most attention. Amid the renewed volatility in oil markets and surging gas prices, the hawks will undoubtedly push for another increase in December. However, the tightening of financial conditions and limited signs of indirect effects from the energy shock create significant hurdles for them.”
—David Powell and Simona Delle Chiaie.
US and Canada
The case for an interest-rate hike when the Fed meets Sept. 15-16 may hinge on government inflation data, after Friday’s monthly jobs report showed broad-based strength in the labor market.
Economists project the consumer price index rose 0.4% in August, an acceleration from a month earlier, due in part to higher gasoline costs.
Stripping out the volatile energy and food components, the core CPI is projected to have risen by a more moderate 0.2%, according the Bloomberg survey median ahead of Friday’s report. That would help bring the annual gauge of underlying inflation down to 2.4%, the smallest year-over-year increase since 2021.
On Thursday, the Bureau of Labor Statistics releases the producer price index. Economists expect both the PPI and a core measure to accelerate in August. Those figures are expected to show more of the immediate price impacts from the Iran war and related supply-chain disruptions.
The same day, a report from the National Association of Realtors is forecast to show a third straight month of declining sales of previously-owned homes. The housing market is battling stiff headwinds from high mortgage rates, elevated prices, and a relatively lean supply.
Further north, everything will be focused on trade relations as Canada’s counter-tariffs on the US take effect on Tuesday. The big question is whether President Donald Trump responds with additional measures, kicking off a new cycle of escalation. And there’s no sign of a return to the negotiating table.
Asia
A focus in Asia will be inflation gauges in China. Consumer price gains are expected to have accelerated to 0.9% year-on-year in August after posting the slowest pace in six months in July, while factory-gate inflation is seen picking up to 3.7%, in what would be a positive sign for demand.
Thailand and Taiwan also release inflation reports.
Japan also publishes July wage data that will telegraph prospects for consumer spending, with attention on real wages after that gauge was revised in June to the biggest gain in five years.
On the same day, Australia releases its September consumer sentiment and August business confidence gauges, with the latter reading having stayed negative for six months. Singapore on Monday publishes retail sales data for July, and countries releasing trade data in the coming week include China and Taiwan.
New Zealand publishes manufacturing activity data for the second quarter on Tuesday, then closes out the week with its manufacturing PMI for August. That gauge has been inexpansionary territory for 13 months.
There are no central bank decisions in Asia this week, but several officials have speaking engagements.
Bank of Japan board member Kazuyuki Masu delivers a speech to business leaders on Thursday, the final scheduled appearance by a BOJ official before the board is widely expected to hike the benchmark rate on Sept. 18. Masu will be watched closely to see if he validates — or pushes back against — prevailing market bets.
Also making appearances will be RBA Assistant Governor Sarah Hunter, RBA Deputy Governor Andrew Hauser, and RBNZ Assistant Governor Karen Silk.
Europe, Middle east, Africa
Initial pointers to economic growth in the third quarter will be closely watched across Europe.
In Germany, industrial production and export numbers for July come on Monday and Tuesday, respectively. The releases could add to growing evidence of a sustained recovery in Europe’s biggest economy, following another bumper gain in factory orders seen in data on Friday.
Meanwhile, France, whose economy barely dodged a recession in the first half, will publish industrial production data for July on Wednesday.
Euro-zone numbers on Monday will offer an updated assessment of growth in the region for the three months through June, initially estimated at 0.4%.
UK gross domestic product numbers for July come out on Friday, offering the first such data from both the current quarter and the early days of Prime Minister Andy Burnham’s time in office. The Bank of England’s inflation attitudes survey will arrive the same day.
Ahead of that, BOE Governor Andrew Bailey and colleagues will appear on Tuesday in front of the UK Parliament’s Treasury Committee to discuss monetary policy.
Turning to the Nordics, consumer-price data will offer crucial clues for policymakers. Sweden’s preliminary inflation reading for August, due on Monday, will be in sharp focus as its central bank weighs whether it needs to raise rates during the fall.
Governor Erik Thedeen said last month that the Riksbank’s next policy move “needs to be a raise,” but that the timing remains unclear as economic growth picks up at the same time as inflationary risks relating to the Iran war appeared at the time to have receded.
Inflation data from Norway are likely to show that core price growth rose back above 3% after surprising in the previous two months with a dip below that level.
A more benign reading would strengthen the chances that the Norges Bank postpones tightening anticipated for this month, perhaps acting toward the end of the year.
Further afield, South Africa data on Tuesday are expected to show the economy contracted 0.1% in the three months through June, snapping six quarters of growth, as the war in Iran and renewed uncertainty ahead of local government elections weighed on investment, and mining and manufacturing output shrunk as well.
Aside from the ECB, several other monetary decisions are on the schedule:
On Wednesday, Poland’s central bank is set to keep borrowing costs on hold for the sixth consecutive month, with the inflation outlook muddied by the war in Iran as the economy continues to power ahead.
Serbia’s central bank may extend its rate pause to a record two years on Thursday, keeping its benchmark at 5.75% amid stronger-than-expected economic growth while seemingly tamed inflation remains exposed to volatile energy prices.
Denmark’s central bank doesn’t have scheduled decisions butit tends to shadow the ECB, so policymakers are likely to raise borrowing costs by a quarter point on Thursday.
In Turkey on Thursday, the central bank is expected to leave its rate at 37%, wary of a surge in oil prices and heightened tensions in the west asia. There’s an outside chance of a 100-basis-point cut, though, given a slowing economy and decelerating inflation.
Finally on Friday, Russian officials will probably choose between a hold and another small cut in borrowing costs when they meet for the first time since July. That’s as last month’s inflation, due the same day, likely accelerated.
Latin America
The coming week features August inflation reports from five of Latin America’s six big economies, with Brazil as the main event.
Given that data, along with unmistakable signs that growth is downshifting, more than a few Brazil-watchers see room for the central bank to deliver a fifth straight quarter-point cut later this month, to 13.75%.
Next up is Chile, where President José Antonio Kast’s ambitious growth agenda has hit a raft of headwinds. The early call on August consumer prices is for a slight uptick toward the 4% top of the central bank’s target range, from 3.5% in July.
In Mexico, August inflation data may draw a line under the tantalizing four-month bout of disinflation that saw consumer prices hitting a six-year low of 3.12% in July.
Peruvian central bankers who meet on Thursday have excellent cause to plump for a modest hike from 4.25% after August inflation hit an above-target 4.44%, but more than a few analysts see a 12th straight hold.
The monthly and year-on-year readings both likely ticked lower on favorable seasonality and a stable exchange rate.
In Colombia, the early consensus has the headline and core readings both taking yet another modest leg up from 6.03% and 6.07% respectively.
