US data expected to show 40-year high inflation levels

Inflationary pressures are likely to put a Federal Reserve interest rate increase next month on autopilot

The US Senate is due to vote on extending Federal Reserve boss Jerome Powell's tenure.

Inflationary pressures in the US continued to heat up at the start of the year, data are expected to show, likely putting a Federal Reserve interest rate increase next month on autopilot.

The consumer price index, measuring US inflation, probably jumped 7.3% in January from a year ago, the largest annual advance since early 1982, according to economists. Excluding volatile energy and food categories, the prices are projected to have risen 5.9%.

The inflation data follow the US government’s latest employment report, which showed newfound momentum in the labour market and faster wage growth that spurred bets that the Fed will be more aggressive in raising rates.

“With energy and food prices still rising, [we] estimate that January inflation continued to exceed the average monthly run rate consistent with an annual 2% inflation target. We expect inflation to peak in February. Slightly more reassuring is that elevated inflation has not seemed to cause long-term inflation expectations to unanchor yet," Bloomberg economists said.

The relative silence from Washington probably reflects the fact that both Fed chair Jerome Powell and governor Lael Brainard await Senate confirmation — Mr Powell for another four years at the helm, and Ms Brainard to become vice chair.

The Senate banking committee expects to vote on them on February 15, together with president Joe Biden’s three nominees to join the Fed’s board of governors: Lisa Cook, Sarah Bloom Raskin, and Philip Jefferson. 

All five will then require confirmation by the full Senate.

Russia

Elsewhere, Russia’s central bank may increase rates by 100 basis points, perhaps the biggest move in another week of anticipated global tightening by monetary officials from Poland to Peru.

China

Inflation in China will remain modest in 2022, the nation’s top economic planner has said, if shifting monetary policies elsewhere weaken the rally in global commodities. 

The National Development and Reform Commission expects China’s inflation risks will fall this year, as the adverse impacts of Covid and global supply shortages grow less severe.

It forecasts the consumer price index to rise this year, after retreating in December from a 15-month high, according to the official statement. 

The full-year 0.9% average increase was lower than previous years.

As global commodity prices rose sharply last year, Beijing cracked down on hoarders and capped domestic coal, gas, and steel prices. 

It said prudent monetary policy helped it avoid flooding markets with unnecessary stimulus.

Oil prices hit a seven-year high on Friday and are expected to climb further.

China expects monetary tightness in western countries to weaken price inflation on imports. Economists expect the Group of Seven central banks will cut total 2022 asset purchases to just 10% of the 2021 level.

Japan

Japan releases household spending figures on Tuesday that could show the early impact of Omicron fears on private consumption, one of the final pieces of data for quarterly GDP out the following week.

Wages will likely show continued meagre gains as prime minister Fumio Kishida tries to lift pay in a wider swathe of the world’s third-largest economy.

Britain

Bank of England governor Andrew Bailey will speak on Thursday, following the Bank of England’s first back-to-back rate increases since 2004. He may explain his vote to block an even bigger hike, and could perhaps clarify comments urging pay restraint that drew a rebuke from Boris Johnson’s office.

On Friday, GDP data will show how the UK economy weathered the first full month of the coronavirus omicron variant, with new growth numbers for December. Economists predict a third consecutive quarter of expansion to end 2021, with a median forecast of 1.1%.

Australia

Australian business and consumer confidence reports will give a check on the mood down under as the country ends its bond-buying programme on Thursday, following the decision to upgrade its outlook for inflation and employment.

• Bloomberg