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Time to Gauge 80-Day Inflation Shock Around the World: Eco Week

·7 min read

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Group of Seven finance chiefs are set to make their biggest appraisal yet of how the world has changed since the start of Russia’s war in Ukraine some 80 days ago sparked a new inflation shock and threatened post-pandemic recoveries.

Following a virtual discussion on March 1 and a brief gathering during the World Bank/International Monetary Fund meetings in April, ministers and central bank governors will convene in person for days of talks starting Wednesday.

The G-7, an economic grouping conceived during the mid-1970s, is confronting echoes of that bleak era, from energy crises to the specter of Russia’s aggression -- at that time with its invasion of Afghanistan, and now against Ukraine.

Even the location of their gathering, in and close to Bonn, the former capital of West Germany, evokes the Cold War division of Europe.

Since finance ministers pledged on April 20 to “sustain and increase our coordinated pressure,” plenty has happened to consider, not least of which is persistent inflation across much of the world.

The global monetary response has become pronounced: the US Federal Reserve raised interest rates by a half point, and several counterparts have shifted their stance, including the European Central Bank, which aims to hike in July.

But as with the 1970s, bigger solutions to the challenges posed by the international standoff remain elusive. And just like then, when Germany was first in line for attack, the host country is the most vulnerable to Russia’s response if President Vladimir Putin raises the stakes and shuts off gas supplies to Europe’s largest economy.

That predicament may be reflected in European Commission forecasts for the region due on Monday. A draft seen by Bloomberg shows the EU will slash growth predictions, while boosting inflation estimates.

Elsewhere in the world, the People’s Bank of China may cut a lending rate, and UK inflation will probably jump again. And don’t miss highlights of the Bloomberg New Economy Gateway conference starting Wednesday in Panama City.

What Bloomberg Economics Says:

“The oil market has two pieces of bad news for the global economy. The demand drag on crude signals a growth slowdown that’s already in motion. And supply shortages, the sole factor behind this year’s price surge, will probably result in a further loss of momentum.”

--Ziad Daoud, economist. For full analysis, click here

Click here for what happened over the past week and below is our wrap of what’s coming up in the global economy.

The US

Retail sales figures on Tuesday are forecast to show that consumer spending held up in the face of higher inflation at the start of the second quarter. While the figures aren’t adjusted for inflation and primarily cover goods purchases, the median estimate exceeds the 0.3% gain in the April consumer price index.

Other US reports this week are forecast to show some cooling in factory output, housing starts and sales of previously owned US homes.

Following the Fed’s rate increase this month, investors will hear from Chair Jerome Powell during an event on Tuesday. Powell, in an interview on Thursday with the Marketplace public radio program, reaffirmed that the central bank is likely to raise the benchmark rate by a half point at each of its next two meetings.

Other Fed speakers scheduled this week to discuss the economy and monetary policy include St. Louis Fed President James Bullard and Chicago Fed President Charles Evans.

  • For more, read Bloomberg Economics’ full Week Ahead for the US

Asia

China will set its medium-term lending facility rate on Monday, with some economists expecting a modest reduction.

That’ll come ahead of retail sales, factory output, investment and employment data for April that’s set to illustrate the economic damage from lockdowns to contain the spread of the omicron coronavirus variant, an impact also seen in credit growth.

Japan’s inflation figures are likely to show the world’s poster-child for weak prices finally hitting 2%. That’ll further complicate the Bank of Japan’s messaging on stimulus as it continues to insist that supporting the economy must take precedence for now.

Gross domestic product data earlier in the weak are expected to show the economy shrinking in the first quarter as Japan’s pandemic recovery fell further behind its G-7 peers.

Wages and jobs numbers in Australia may stoke expectations of faster rate increases by the RBA if they outperform.

Australia’s central bank also releases minutes from its meeting earlier this month, where it took the unusual step of starting its rate hike cycle during an election campaign. Sri Lanka and the Philippines set interest rates on Thursday.

  • For more, read Bloomberg Economics’ full Week Ahead for Asia

Europe, Middle East, Africa

A slew of UK reports will catch investors’ eyes. Unemployment on Tuesday is likely to indicate a tight labor market, and consumer prices on Wednesday may show a remarkable jump in headline inflation. Economists anticipate a surge of two percentage points, with the median showing an outcome of 9.1%.

That would be the fastest inflation since 1982 -- and the biggest jump in the headline pace since 1980 -- putting the UK well on the way to the outcome of above 10% for the fourth quarter that the Bank of England foreshadowed this month when it raised rates.

Aside from EU forecasts on Monday, policy makers’ comments may get attention in the euro zone, where at least four ECB Executive Board members will speak. They include President Christine Lagarde, who’ll deliver a speech near Frankfurt. Minutes of the central bank’s last decision will be released on Thursday.

Looking east, Russia’s economy probably grew 3.8% in the first quarter, according to the median estimate of economists. The data on Wednesday mostly encompass the period before the invasion of Ukraine, which began Feb. 24.

Russia’s finance ministry is expecting the deepest contraction in nearly three decades this year as pressures from sanctions mount, Bloomberg reported on May 10.

Further south, a spike in local inflation and Fed tightening are likely to prompt Egypt’s central bank to raise rates on Thursday. Analysts expect a 100-to-200 basis-point increase.

Officials in Zambia are expected to keep their key rate unchanged on Wednesday as inflation trends downward.

Rising oil and food prices will likely see an upward revision to the South African central bank’s inflation forecasts, prompting it to raise its benchmark rate on Thursday. Market bets are fully pricing a quarter-point increase, with the odds of a bigger move at 94%.

  • For more, read Bloomberg Economics’ full Week Ahead for EMEA

Latin America

Peru, Brazil and Colombia on Monday are expected to post March GDP-proxy data. The Peruvian and Brazilian readings are likely to point to a slowing of momentum, whereas Colombia’s -- to be released along with its first-quarter GDP report -- should be consistent with the economy’s strong 2022 growth forecasts.

First-quarter output data from Chile should show a deceleration from its breakneck pace of 2021 that came on the back of extraordinary stimulus measures. Going forward, a mix of fiscal restraint and a jump in interest rates may tip the economy into recession.

For more on the outlook for inflation and growth in Chile, the central bank on Friday posts the minutes of its May 5 meeting where policy makers raised the key rate to 8.25% -- up from 0.5% as recently as July –- and they didn’t sound as though they’ve finished tightening just yet.

Look for Argentina’s March GDP-proxy reading to slow after February’s jump. Economists surveyed by the central bank in April forecast 3.5% growth this year, up from 3.2% in March, but also raised their inflation outlook to 65.1% from 59.2%.

Surging consumer prices will likely prompt monetary officials in Uruguay and Paraguay, both meeting in the coming week, to extend rate increases.

  • For more, read Bloomberg Economics’ full Week Ahead for Latin America

(Updates with EU forecasts in eighth paragraph)

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