U.S. Inflation Is Probably About to Spike Yet Again

Inflationary pressures in the U.S. 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 probably jumped 7.3% in January from a year ago, the largest annual advance since early 1982, according to the median projection in a Bloomberg survey of economists. Excluding volatile energy and food categories, the CPI is projected to have risen 5.9%.

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

It’s a light week for Fed-speak, with only the Cleveland Fed’s Loretta Mester and Governor Michelle Bowman scheduled, both on Wednesday. Mester’s an FOMC voter this year and Bowman will be the first governor to make public remarks since Chair Jerome Powell’s press conference on Jan. 26.

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

The Senate Banking Committee expects to vote on them Feb. 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.

What Bloomberg Economics Says:

“With energy and food prices still rising, Bloomberg Economics estimates 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.”

–Anna Wong, Yelena Shulyateva, Andrew Husby and Eliza Winger.

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.

Asia

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 meager gains as Prime Minister Fumio Kishida tries to lift pay in a wider swathe of the world’s third-largest economy.

Australian business and consumer confidence reports will give a check on the mood Down Under as the RBA ends its bond-buying program on Thursday, following the decision to upgrade its outlook for inflation and employment.

India and Thailand have central bank meetings on Wednesday, and Indonesia follows on Thursday.

As China returns from its week-long Lunar New Year holiday, investors will scrutinize spending figures to take the pulse of consumers in the world’s second-largest economy.

Inflation in the world’s second-largest economy will remain modest in 2022, China’s top economic planner said Sunday, if shifting monetary policies elsewhere weaken the rally in global commodities.

Europe, Middle East, Africa

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 Prime Minister Boris Johnson’s office.

On Friday, gross domestic product data will show how the U.K. 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%.