This week investors will be seeing the release of a range of new economic statistics, including the most recent inflation figures for some major economies. Since the pandemic wreaked havoc on supply chains and the addition of government stimulus among other things prompted mass demand, prices have risen steadily across the world. This week, we’ll be looking specifically at new price info from Canada, the UK, New Zealand, and Japan.
For over a year now, many of the largest Central Banks have been hard at work tightening borrowing rates to strangle inflation, and prices have mostly begun to trend fairly sharply downward for much of the world, with some exceptions.
The difficulty many countries are facing is that employment is still showing stronger than expected growth numbers. This can then mean that employers may need to increase wages to lure the best candidates, and in turn this may stoke demand and high prices. Until employment figures begin to slow, in concert with inflation and retail sales, among others, many countries will be stuck with higher interest rates for longer.
Let's take a glance at the forecast for the coming week and see which countries are doing the best job of containing inflation.
Canada
The annual inflation rate in Canada dropped fairly significantly to 3.4% in May from 4.4% the previous month. It was the lowest level since June 2021 and, according to Statistics Canada, was largely the result of base year effects from the influence that Russia's invasion of Ukraine had on global oil prices.
Forecasts are for a further dip to 3% when the report is released at 12:30 PM GMT on Tuesday, after the Bank of Canada raised rates to an over twenty year high of 5.0% last week.
Inflation is expected to hover around 3% for the upcoming year before falling back to the 2% target in 2025, according to the bank's cautious projections. They further warned that the dynamics of core inflation, inflation expectations, wage growth, and corporate pricing behavior would be closely monitored to determine whether or not further intervention is required.
New Zealand
The RBNZ has been increasing its cash rate at a record pace in recent times in order to reduce inflation that reached an over thirty year high of 7.3% in the June quarter of last year. Annual headline inflation decreased to 6.7% in the most recent quarter to March, down from 7.30% in the previous quarter. Even at its current rate of 6.7%, inflation is still at levels that have not been seen for decades.
The board of the RBNZ suggested that the level of interest rates was restraining spending and inflation pressures as needed after maintaining the official cash rate (OCR) at 5.5% during its meeting earlier this month. It also stated that the OCR must remain at a restrictive level in order to achieve the target range of 1 to 3% annual inflation by H2 2024. As supply limitations ease, the committee concluded that the risks associated with the inflation outlook were broadly balanced.
Analysts expect inflation to have fallen to around 5.9% year over year for the second quarter when the results are published at 10:45 PM GMT on Tuesday this week, and to 0.9% quarter over quarter.
UK
Back in May, the consumer price inflation rate in the UK remained stable from the previous month's 13-month low of 8.7%. The rate is still far above the Bank of England's target rate of 2.0%, raising questions about how entrenched it may be and puts extra pressure on decision-makers to continue the bank's current tightening cycle.
UK consumer price inflation is still unacceptably high according to Andrew Bailey, governor of the BoE, who predicted last week that inflation would decline "markedly" this year. Expectations are for interest rates to continue well above the current level of 5% this year, with some forecasting borrowing rates above 6%.
The June meeting of the BoE saw the 13th consecutive increase in the policy interest rate, this time by 50 basis points, to a high of 5.0%. Borrowing costs have increased to their highest level since the 2008 financial crisis as a result of the move, which was above market expectations of a lesser rate hike of 25 basis points. If the current inflationary pressures continue, policymakers have also promised to deliver additional rate hikes.
According to economists, the consumer price index for June, which is scheduled for release at 6 AM GMT on Wednesday, will decrease to roughly 8.2%.
Japan
Broadening price pressure that will keep the central bank under pressure to phase down its stimulus was highlighted in May when core consumer inflation in Japan surpassed estimates and an index excluding fuel costs climbed at the quickest annual pace in over forty years.
According to the Ministry of Internal Affairs and Communications, the core consumer price index—which excludes fresh food—rose 3.2% in May from a year earlier. This marks nine months in a row where the core CPI has risen above 3%.
When the new data is released at 11:30 PM GMT on Thursday, expectations are for a rise in annual inflation to around 3.5%, while core inflation may also bump up to 3.3%.
Governor Kazuo Ueda of the Bank of Japan suggested to reporters after the June monetary policy meeting that inflation has been higher than predicted. However, later in the current fiscal year, the BOJ expects core inflation to fall back below 2%.
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