Is US inflation set to rise additional? | USAEMALL.com

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A blowout US payrolls report on Friday has caused investors to further dial back their expectations for interest rate cuts and put even greater focus on next week’s inflation figures.

Economists polled by Reuters expect Wednesday’s US consumer price index to show inflation of 2.8 per cent in December, up from 2.7 per cent a month earlier. They anticipate that core inflation, which strips out volatile components such as food and energy prices, will come in at 3.3 per cent, the same as November’s figure.

But, after fresh data showed US employers added 256,000 new jobs in the final month of 2024 — up from a revised figure of 212,000 in November and much higher than estimates of 160,000 — debate has intensified about how far the central bank can ease monetary policy in the face of a strong economy.

US government bonds fell sharply, sending yields higher, immediately after the jobs report, and market pricing on Friday indicated that investors had pushed back previous expectations of when the Fed will deliver its first quarter-point cut of the year.

Jack McIntyre, a portfolio manager at Brandywine Global, said that “the outsized strength in the November employment report put a stake in the heart of more Fed rate cuts in the first half of 2025”, but “as important as the labour situation is, the critical variable for the Fed and markets is all things inflation.” Harriet Clarfelt

Will China hit its growth target?

China’s fourth-quarter GDP numbers on Friday will show whether the country reached its economic growth target of about 5 per cent in 2024, amid concerns over a stagnant economy and low consumer confidence.

Analysts polled by Reuters expect authorities will announce a 5.1 per cent rise in the fourth quarter compared with a year earlier.

However, given the impending threat of a renewed trade war when US president-elect Donald Trump takes office and the after-effects of the bursting of the property bubble, economists said the real risks to growth were still to come.

“We are in the new year and authorities need to ramp up [stimulus] whether they hit [5 per cent] or not,” said Tao Wang, chief China economist at UBS Investment Bank, who cited weak consumption data and the “very real risk of tariffs and not strong evidence that the property [market] has stabilised”.

The renminbi has weakened past Rmb7.33 to the dollar in the opening trading days of this year, as foreign investors bet that China’s economic problems will continue to weigh on the currency.

Consumer prices nudged up by 0.1 per cent in December, highlighting the potential deflationary trap for the world’s second-largest economy, despite efforts to boost consumption and revive animal spirits.

Market attention is already focused on the March meeting of the National People’s Congress, with expectations growing that further stimulus will be announced in order to help drive domestic consumption and protect the economy from a volley of potential trade measures from the US. Arjun Neil Alim

Is the UK at risk of stagflation?

Investors will be closely watching UK inflation and GDP numbers next week to assess the risk of stagflation, following recent turbulence in the gilt market.

Economists polled by Reuters forecast data released on Wednesday will show inflation will be 2.6 per cent in December, unchanged from the previous month.

That compares with the Bank of England’s 2.5 per cent forecast in its November outlook.

Analysts expect core inflation, which excludes energy and food, to decline marginally to 3.4 per cent in December from 3.5 per cent in the previous month. “But it is likely that markets will be especially sensitive to any part of the report showing higher price pressure,” said Ellie Henderson, economist at investment bank Investec.

Henderson expects a rise in headline inflation to 2.7 per cent, reflecting “the confluence of various upward influences”, including base effects once again. She noted that one unknown is the extent to which businesses are already preparing for the higher cost of labour come April — due to higher National Insurance Contributions and changes to the National Living Wage — by starting to increase prices.

After December, she forecasts headline inflation to remain above the BoE’s 2 per cent target for the entirety of 2025, while she thinks the core measure will remain elevated until the spring and then fall.

Economists also expect the economy to have expanded by 0.2 per cent in November after two months of contraction.

However, if Thursday’s figures disappoint, “a third successive contraction in the economy would probably not go down well in foreign exchange markets”, said Henderson. Valentina Romei