Has US consumer price growth finally started to moderate?
The upcoming US consumer price index report is expected to show that inflation continued to grow in April, albeit at a slightly slower pace than in previous months.
Economists polled by Bloomberg forecast that US consumer prices rose at a pace of 8.1 per cent year on year compared with 8.5 per cent in March. Inflation at that level would remain close to four-decade highs but would represent the first slowdown in pace since August 2021.
So-called “core” CPI, which strips out the effects of the volatile food and energy sectors, is also expected to have slowed compared with April last year. But the data, due out on Wednesday, may still show that core inflation accelerated from the previous month.
The category to watch will be shelter costs, according to Greg McBride, chief financial analyst at Bankrate. “Shelter accounts for 40 per cent of the CPI — as it does for many household budgets — and with double-digit increases in rents kicking in, this puts the household budget in a vice even if food and energy costs level out,” he said.
This is one of two consumer price reports that will be considered by the Federal Reserve at its June meeting, during which it is widely expected to raise interest rates again by 0.5 percentage points. A big deviation from the CPI forecast, in either direction, could change the Fed’s calculus. Kate Duguid
How much did UK GDP grow in the first quarter?
The Bank of England expects the UK economy to have grown by 0.9 per cent in the first quarter, boosted by the easing of all Covid-19 restrictions early in the year.
Economists polled by Reuters forecast gross domestic product to have expanded by 1 per cent in the quarter when data is released on Thursday, but they also project output to have grown by 0.1 per cent between February and March. The reading would confirm the slowdown seen in February when growth dropped to just 0.1 per cent from 0.8 per cent in January.
“We expect the economy to have eked out some growth again,” said Ellie Henderson, an economist at Investec. She expects a 0.1 per cent expansion in March, driven by services, with manufacturing and construction poised to contract as they did in February. She said a slowdown in Covid vaccinations would be less of a drag, but the rebounds in the recreation and hospitality sector would also have waned.
After the first quarter, the BoE expects economic growth to slow “sharply . . . reflecting the significant adverse impact of higher global commodity and goods prices on most UK households’ real incomes and many UK companies’ profit margins”, according to its latest outlook published last week.
The BoE forecasts were “distinctly bleak,” said Ross Walker, an economist at NatWest Markets, with quarterly growth expected to alternate from near stagnation to an outright contraction this year and the next.
The prospect of UK inflation rising to a 40-year high at the end of this year, largely reflecting surging energy costs after Russia’s invasion of Ukraine, is expected to lead to a drop of almost 1 per cent in economic output in the fourth quarter. And by the second quarter of 2025, the UK economy is expected to be less than 1 per cent larger than it is today. Valentina Romei
Who will fill the gap in the wheat market left by Ukraine?
Agricultural commodity markets have been roiled by the war in Ukraine, as buyers of grains and vegetable oils from the country as well as Russia try to find alternative sellers.
The jump in food import bills for poorer countries has led to worsening hunger, as well as worries about political instability. Russia is the world’s largest wheat exporter, while Ukraine is the fifth largest. Together they account for 30 per cent of global exports, according to the UN Food and Agricultural Organization. The two countries also account for more than 60 per cent of the world’s sunflower oil trade.
“My biggest concern right now for the ag markets is wheat,” said Craig Turner, senior commodities broker at StoneX. India, which had a bumper crop in 2021, has been cashing in on the surge in the wheat price. This year’s harvest was initially forecast to be a record, but the extreme heatwave hitting India could lead to crop damage and trigger export restrictions.
“The world needs exportable supplies of wheat, and things could get very tight this summer,” added Turner.
The US Department of Agriculture publishes its crop production report on Thursday along with its monthly World Agricultural Supply and Demand Estimates report covering grains, oilseeds and other agricultural commodities. The production report will include estimates of this year’s US winter wheat harvest, while the WASDE will offer some insights into which producing countries can fill the gap in the export markets. Emiko Terazono