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Global Rate-Hike Battle Presses On Relentlessly: Eco Week Ahead


Central banks around the globe are set to continue an assault on high inflation this week, even as vulnerabilities in their economies become ever clearer.

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(Bloomberg) — Central banks around the globe are set to continue an assault on high inflation this week, even as vulnerabilities in their economies become ever clearer.

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Northern-hemisphere policy makers are forecast to deliver the more aggressive actions. Unprecedented tightening in the form of a 75-basis-point rate increase is expected from the European Central Bank on Thursday, a day after the Bank of Canada hikes by a similar amount. 

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That would follow half-point moves anticipated on Tuesday in Australia and Chile. At least five other central banks around the world are also expected to raise rates in the coming week. 

As all of them vie to defeat the common foe of inflation, the danger of fallout is also coming into view. In Canada, Toronto home prices have slumped 16% since March as mortgage rates climbed, while Australia’s bellwether property market of Sydney has seen a 5% drop in the past three months. 

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ECB policy makers, whose rate-hiking cycle has only just begun, are bracing for a possible contraction in the euro zone as the prospect of a Russian gas shutoff menaces the economy.

Such monetary fireworks are just the start of what’s likely to be a crucial month for global policy. Later in September, the US Federal Reserve will meet, with another rate hike of at least half a point the likely outcome. 

What Bloomberg Economics Says:

“The tone of discussions surrounding the ECB’s next interest rate decision on Sept. 8 seems to have shifted. Several prominent members of the Governing Council are pushing for a large rate hike.”

—David Powell, Jamie Rush and Maeva Cousin, economists. For full analysis, click here

Elsewhere, the UK will get a new prime minister to succeed Boris Johnson, and multiple countries from Russia to Mexico will publish inflation data.

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Click here for what happened last week, and below is our wrap of what’s coming up in the global economy.

US Economy

In the US, Federal Reserve Chair Jerome Powell leads a hefty lineup of central bankers offering their views in the final week before officials enter a blackout period ahead of the Sept. 20-21 policy meeting.

Powell’s remarks on Thursday will be preceded by his No. 2, Lael Brainard, and followed Friday by a speech from Fed Governor Christopher Waller. The remarks will be weighed carefully for evidence of a tilt toward another 75 basis-point interest-rate increase, or if there’s scope for the hiking pace to be dialed back to 50 basis points.

The US economic data calendar is light during the holiday-shortened trading week, with August services activity, the July trade deficit, and weekly jobless claims among the highlights. 

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  • For more, read Bloomberg Economics’ full Week Ahead for the US

Asia

The Reserve Bank of Australia is likely to opt for another half-percentage point rate hike on Tuesday, piling more costs onto the nation’s indebted families as it tightens aggressively after coming late to the fight against inflation. 

RBA Governor Philip Lowe is likely to shed light on his thinking in a speech on Thursday that will be closely parsed to see if it matches the hawkish tone of Fed chief Powell’s recent Jackson Hole remarks. 

In Japan, where inflation is being fueled by a weakening yen, the latest wage and household spending figures will show how much real incomes are falling, and the impact on consumption. 

Bank of Japan Governor Haruhiko Kuroda insists wage growth must pick up for him to believe 2% inflation is here to stay. Revised economic growth figures due on Thursday should confirm that a slow recovery from the pandemic picked up a little pace in the second quarter. 

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China reports trade data on Wednesday and inflation numbers Friday, with economists also glued to daily Covid case numbers as more restrictions threaten to crimp activity. 

Malaysia sets interest rates on Thursday, with a quarter-point increase forecast by economists.

  • For more, read Bloomberg Economics’ full Week Ahead for Asia

Europe, Middle East, Africa

Britain’s Conservative Party will select a new leader on Monday to succeed Johnson as prime minister and fill the void created by his resignation almost two months ago, during which time he’s continued in a caretaker capacity. 

The winner — likely to be Foreign Secretary Liz Truss — faces a moment of exceptional tumult, with a cost-of-living crisis raging and global investors displaying increasing doubt on the prospects of an economy now smaller than that of India. 

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An opportunity to reassure them will come on Wednesday, when Bank of England Governor Andrew Bailey testifies to Parliament’s Treasury Committee. 

In the euro zone, German factory-order data on Tuesday and industrial production the next day may provide a glimpse of the damage already wrought on manufacturers by high energy prices and a squeeze on supplies. 

After the ECB’s probable rate hike on Thursday, Denmark is likely to follow suit with a move of its own. Policy makers in Poland and Serbia may raise borrowing costs the same day, and a decision by the central bank in war-torn Ukraine is expected as well.  

Among data highlights from outside the euro region, a report on Swedish house prices on Thursday will focus the Riksbank as it mulls another rate hike while assessing the fallout of higher lending costs on consumers. 

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Meanwhile, inflation in Hungary the same day — seen accelerating to 16% — and in Norway on Friday are likely to grab investors’ attention. 

In Turkey, the pace of consumer-price growth likely continued its upward surge to above 80% in August after the central bank defied all expectations and cut its main rate in August. The inflation report is due on Monday. 

South African data on Tuesday is likely to show the economy contracted 0.9% in the second quarter as widespread power outages and devastating floods in the eastern KwaZulu-Natal province impacted output. 

Egyptian inflation is expected to show slight acceleration just as the nation seeks progress in talks with the International Monetary Fund that may require further currency flexibility and depreciation.

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In Russia on Friday, data may show further easing in price pressures a week before the next monetary policy meeting, at which another rate cut is expected.

  • For more, read Bloomberg Economics’ full Week Ahead for EMEA

Latin America

In Chile, central bank chief Rosanna Costa is expected to extend a record tightening cycle and raise the key rate for a 10th straight meeting, to at least 10.25%.

That restraint may raise eyebrows when set against August consumer-price data, which analysts see posting a scorching 13.8% year-on-year print, but the consensus view is that recession and record-high rates will see Chile’s inflation finally peak in the coming months.

In Peru, analysts expect the central bank to hike its key rate by a half-point for a 13th straight meeting, to 7%. With year-on-year inflation finally falling, central bank chief Julio Velarde may be very close to done.

Inflation in Colombia, Latin America’s fastest growing major economy, is still going up and likely hit a 23-year high of 10.4% in August. Also look for another hot inflation reading out of Mexico, where analysts see the headline number hitting a new 21-year high near 8.7% while the core reading pushes past 8%.

In Brazil, by contrast, the direction of travel is no longer in doubt: look for the annual consumer-price print to come in at about 9.4%, down from 12.13% in April.

  • For more, read Bloomberg Economics’ full Week Ahead for Latin America

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