Inflation slowdown provides relief to central banks in US and Eurozone

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This slowdown could offer solace to officials from both the Federal Reserve and the European Central Bank (ECB). Last week, both institutions hinted that their monetary tightening phase might be concluding or at least temporarily paused, directing their attention towards maintaining high interest rates to effectively combat inflation.

However, vigilance remains crucial. The potential for crude oil prices reaching $100 per barrel could trigger further price growth. Recent surges in energy costs are already being felt. The comprehensive personal consumption expenditures price index favored by the Fed is anticipated to record one of this year’s highest monthly increases when Friday’s report is released.

Despite these hikes, headline inflation in the Eurozone, also due for release on Friday, is projected to have considerably weakened to a two-year low of 4.5%.

In addition to these developments, appearances by heads of the Fed and ECB, along with interest rate decisions from Hungary and Mexico, will keep market participants engaged this week. In the U.S., the personal consumption expenditures (PCE) report may be the last set of government figures policymakers see for some time due to an impending government shutdown beginning October 1. The previous shutdown in 2013 resulted in delays for key reports such as employment data.

Other significant data releases scheduled this week include new-home sales, consumer sentiment and durable goods orders. Furthermore, the Census Bureau will release its third estimate of second-quarter growth along with benchmark revisions. Federal Reserve Chair Jerome Powell is set to host a town hall with educators, while Fed officials Neel Kashkari, Austan Goolsbee, Thomas Barkin and John Williams are scheduled to speak at separate events.

Meanwhile, in Canada, July’s gross domestic product data will be released following preliminary data that suggested a stagnant economy for the month. This aligns with the central bank’s decision to maintain interest rates at 5%. The forthcoming payroll and job vacancy data is expected to indicate a relaxing labor market, though wage growth continues to be robust.

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