Is the Fed’s favorite inflation gauge continuing to decline?

Has inflation slowed US consumer spending?

Gregory Daco, chief economist at EY-Parthenon, said U.S. inflation has peaked, but for consumers, the important factor will be how quickly price growth cools, and where it ends up.

The core personal consumption expenditures price index, which excludes food and energy prices, has begun to fall. Core PCE rose 5.2% year over year in March, after rising 5.3% in February. Economists expect the growth rate to fall further to 4.9% in April data released on Friday. The PCE comes after other inflation reports, including consumer price indexbut as the Fed’s preferred inflation indicator, it is closely watched by investors.

Oren Klachkin, chief U.S. economist at Oxford Economics, will also monitor consumer spending data included in the PCE data for a shift from goods to services. “We’d actually like to see a shift to service,” he said. “It means that after more than two years of dealing with Covid, we are getting back to normal.”

Daktronics said it expected a pullback in spending on goods, but a drop in spending on services, especially in the leisure category, suggested the economy was more fragile than expected.

Recent quarterly earnings show spending on goods may be slowing.Walmart cuts Full-year profit forecast Last Tuesday, Target reported a down 52% Net income after one day. Jaylen Kerr

Will Turkey’s central bank act to stabilize the lira?

The Turkish lira has returned to choppy waters in recent weeks, falling 16% against the dollar this year amid soaring inflation and a challenging global economic outlook. But that doesn’t mean Turkey’s central bank will act.

Members of its Monetary Policy Committee will almost certainly choose to keep the policy rate at 14% on Thursday.

The bank is effectively run by President Recep Tayyip Erdo─čan, who has an unconventional view on monetary policy, even though inflation has hit 14 times his official target of 5% last year. It reached nearly 70% in March, but the bank has been on the sidelines.

With negative real interest rates weighing on the lira, authorities have tried to keep the lira stable through a series of extraordinary measures. These include a government-backed savings scheme designed to entice Turkish residents to hold lira by promising to protect them from currency losses. Central banks are also increasingly pressuring companies not to buy foreign currency and urging commercial banks not to sell it to them.

But analysts warn that these strategies may be reaching their limits. Per Hammarlund, chief emerging markets strategist at Swedbank SEB, said the lira was brewing a “perfect storm” with rising inflation, a widening current account deficit, high global energy prices and the risk of falling key export earnings. Global growth slows.

“A credible commitment to raising interest rates and lowering inflation will stabilize the lira for a longer period of time,” he wrote in a recent note to clients. “But with President Erdogan firmly opposed to raising rates, this will only be the last s method.” Laura Pieter

How is business activity in the euro area maintained?

Business activity in the euro zone has remained flat so far this year. But economists fear that could soon change if Russia’s invasion of Ukraine and China’s strict coronavirus lockdown take a more severe impact on output.

On Tuesday, S&P Global’s latest survey of purchasing managers is set for a key test, which ECB policymakers will closely monitor as they weigh when to stop buying more bonds and start raising interest rates.

The composite PMI reading slipped 0.5 point to 55.3, according to a Reuters poll of economists expected to show business activity in the euro zone remained steady in May from the previous month.

Services firms are expected to report a slight boost in their activity due to the lifting of coronavirus restrictions, offsetting slower growth at manufacturers due to the war in Ukraine and supply chain disruptions.

Annalisa Piazza, an analyst at MFS Investment Management, said China’s coronavirus lockdown will hit euro zone industries on two fronts. “This will lead to more supply constraints, which will further slow production, mainly of intermediate industrial goods,” Piazza said. “But for euro zone exports, there will definitely be an immediate impact as well.”

German manufacturers are particularly vulnerable to this headwind. Investors will learn more about their outlook when Munich’s Ifo Institute releases its latest business survey results on Monday, which are expected to show a dip in sentiment as expectations fall to a two-year low. Martin Arnold

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