How hot is inflation in the eurozone?
Eurozone inflation is likely to continue falling when June data is released on Friday, but rate-setters at the European Central Bank will be watching to see if price growth still picks up after excluding energy and food prices.
Consumer prices in the single currency bloc are expected to rise 5.7 percent in the year to June, compared with 6.1 percent in the previous month, according to a Reuters poll of economists.
However, the ECB is focused intently on underlying price pressures, which could hold steady even as energy prices fall below last year’s high. Prices for services are likely to be boosted by comparison with last year, when Germany launched heavily subsidized public transport tickets.
Andrew Kenningham, an economist at research group Capital Economics, said he expects the divergence in German transport prices to push eurozone core inflation – which excludes energy and food prices – to 5.5 percent in June, up from 5.3 percent in June. May.
There were signs of lower price pressures from last week’s S&P Global survey of purchasing managers, which showed business selling prices rising at the slowest rate in 27 months. But higher wages continued to drive up input costs.
“The bottom line is that given the volatility, it is not yet clear whether service inflation is declining. “In fact, it could be surprising to the upside next week,” Kenningham said. “So the ECB will remain hawkish in its rhetoric.”
Will the Fed’s preferred inflation measure show lower rates?
Investors will also be watching the core personal consumption expenditures index, the Fed’s preferred measure of inflation, for the latest indication of inflationary pressures in the US.
The data is expected to show that a measure of price – which excludes the volatile food and energy sectors – rose 4.7 percent year-on-year in May, the same level as April, according to economists polled by Reuters. Core personal consumption expenditures have stagnated between 4.6 and 4.7 percent since the start of the year and have been a major concern for the Fed.
The high PCE oil core figure is part of the reason the Fed has suggested that it will have to raise interest rates twice more this year even after halting the rate hike cycle in June. In its summary of economic projections this month — the so-called dot plot — the Fed projected that core personal consumption expenditures would end the year at 3.9 percent, up significantly from its forecast of 3.6 percent in March.
Some analysts think the Fed is overly pessimistic. Gabriel Causey and Matt Raskin of Deutsche Bank this week published research indicating that core personal consumption expenditures could end the year around 3.5 percent higher as the economy slows.
How weak is the UK housing market?
Rising interest rates are shaking up the UK property market, and data on house prices and mortgage approvals are due next week.
Mortgage rates rose last month to levels not seen since the 2008 financial crisis after official figures revealed higher-than-expected wage growth and inflation.
Price pressures prompted the Bank of England to raise interest rates more than expected, by half a percentage point to 5 percent, the highest level since 2008. Markets now expect the central bank to raise interest rates to 6 percent by the end of the year. .
The figures for mortgage approvals for May, which will be published by the Bank of England on Wednesday, will not reflect the sharp increase in interest rates at the end of that month, but will likely show continued weakness in the market.
Eli Henderson, an economist at Investec, expected the number to be 50,000, up from 48,700 in April, but 25 percent below the level in May 2022. “It will be the numbers for June and beyond that will reveal the impact of now higher mortgage rates,” she said. Much on the housing market momentum.
It also predicted that the nationwide home price index, due for release at the end of the week, would show an annual decline of 3.9 percent in June, the sharpest decline since 2009.
“The market is clearly turning,” said Myron Jobson, senior personal finance analyst at Interactive Investor. “Home prices remain squarely on the downward trajectory as the impact of affordability pressure from rising mortgage rates and high inflation continues to percolate.”