Wholesale prices in Japan rise faster than expected
Japan’s producer prices, or wholesale prices, rose 10.2% in December from a year ago, according to official data.
It was more than the 9.5% rise expected by economists polled by Reuters and marked the third straight rise in monthly readings.
The country’s producer prices rose 0.5% on a monthly basis, also higher than expected to see a 0.3% increase.
Week Ahead: Industrial Production, Retail Sales, GDP and Bank of Japan Rate Decision in China
A slew of economic data is expected for the week of January 16, including China’s industrial production and gross domestic product, as well as the Bank of Japan’s rate decision.
On Monday, South Korea will release revised trade data and Indonesia will release its trade balance for December. India is expected to release its wholesale price index, which economists polled by Reuters expect to fall to 5.6% in December.
China will release retail sales, industrial production, urban fixed investment for December as well as its gross domestic product for the quarter on Tuesday. Singapore will release its non-oil exports for December on the same day.
On Wednesday, the Bank of Japan will wrap up its monetary policy meeting and likely keep interest rates ultra-low. Investors will be looking for clues about who Gov. Haruhiko Kuroda’s successor might be and a possible policy shift to come.
Japan is expected to release machinery orders for November on the same day while Malaysia releases December trade data.
On Thursday, the central bank of Malaysia will announce its key rate while Australia will publish its employment figures.
China is expected to release its prime rates on one-year and five-year loans on Friday. Japan’s consumer price index for December is also expected.
Inflation outlook eases again, traders fully price in quarter-point rate hike
The decline in consumer inflation expectations coincides with expectations that the Federal Reserve will reduce the level of interest rate hikes in a few weeks and end them quite soon.
The University of Michigan Consumer Sentiment Survey showed the one-year inflation outlook on Friday down to 4%, the third straight monthly decline and the lowest level since April 2021.
At the same time, traders assigned a 94.2% probability of an interest rate hike of 0.25 percentage points on Feb. 1 at the end of the Fed’s next two-day meeting. That marks another smaller move than the 0.5 percentage point rise in December, which was itself a deceleration from four consecutive 0.75 percentage point increases.
“Inflation expectations are well anchored and improving as price pressures ease across many sectors. The Fed is likely to hike 0.25% at the next meeting later this month,” said LPL Financial chief economist Jeffrey Roach. “We shouldn’t be surprised if the Fed starts talking about a pause in the near future.”
Consumer confidence improves for the second month in a row
The University of Michigan said its consumer confidence index rose for a second consecutive month, although it remained at an all-time low. The index climbed to 64.6 from 59.7 in December. Yet it remains about 4% below its level of the previous year.
“Uncertainty on both measures of inflation expectations remains high, and changes in global factors in the months ahead could generate a reversal of recent improvements,” said Joanne Hsu, director of consumer surveys.
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How will the Fed react to falling inflation and recession warnings from bank CEOs?
A negative inflation reading on Thursday combined with warnings of a mild recession from major banks on Friday could be signs that the Fed will soon pause or even cut rates this year, but that would require another change. direction from the central bank.
“You don’t have to agree with Fed policy to believe them,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
Goodwin pointed out that the overwhelming majority of voting members of the Fed expected a federal funds rate of 5% or more this year at the last meeting. And given the concerns expressed by some central bankers about the consequences of pausing too early, they may be determined to achieve this goal.
“With a relatively high degree of unification and conviction, they said they were going to raise the policy rate to 25 basis points higher than what the market says. And frankly, unless we see a slowdown in inflation or a collapse in economic growth quickly…I don’t think they’re going to change their minds,” Goodwin added.