Central bankers worldwide focus on inflation as cost pressures rise

Ottawa

THE shifting sands of global inflation will be the focus of central bankers from Ottawa to Wellington in coming days after a month of mounting concern about consumer prices among counterparts including the US Federal Reserve.

The Bank of Canada, which is already in the vanguard of Group of Seven economies dialling back stimulus, will continue that on Wednesday, with officials seen cutting weekly bond purchases by a third. That further step towards normalising monetary policy could eventually presage interest rate increases.

The same day, New Zealand's central bank may signal earlier tightening, and Chilean monetary officials are anticipated to proceed with a hike.

Meanwhile, the Bank of Korea on Thursday will also possibly reveal clues on plans for an initial rate increase; and the next day, Bank of Japan officials might be more sanguine as they focus on their green lending programme but could still raise their forecast for consumer prices this year.

The backdrop all such institutions are facing is a global post-pandemic rebound that some officials worry could morph into a lasting inflation shock. In June, the Fed brought forward its expectations of rate hikes, and even the perennially dovish European Central Bank has acknowledged that prices might grow more rapidly than predicted in coming years.

"There is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an earlier-than-expected tightening of US monetary policy," Kristalina Georgieva, the International Monetary Fund chief, wrote in a blog post last week. "Other countries face similar challenges."

Elsewhere, China will release gross domestic product data; UK inflation may turn out to have reached the fastest since 2018; the US consumer-price report for June will also be released; and Fed chair Jerome Powell will testify in Congress.

In the US, investors are watching for the latest consumer price data due out on Tuesday for signs of whether cost pressures are lasting. Other reports in focus include retail sales - which will provide a reading of spending strength - as well as industrial production and business inventories.

Fed watchers will be awaiting Mr Powell's testimony before the House Financial Services Committee on Wednesday, and the Senate Banking panel a day later. His appearance before Congress is part of the central bank's semi-annual report to lawmakers on economic and financial developments and monetary policy.

The Fed's Beige Book on Wednesday will also reveal perspectives of businesses on the US economy.

Further north, the Bank of Canada is forecast by economists to cut its weekly bond purchases to C$2 billion (S$2.2 billion) per week on Wednesday, ahead of an expected surge in economic activity. That figure is seen falling further to about C$1 billion by the end of this year or early 2022.

Just as with the US, consumer prices will be a key focus in Europe this week, with data for June due to be published in the UK, Romania, Poland, Denmark and Sweden, to name a few. Final numbers are also due for France, Germany and the euro zone.

Results are likely to vary across the continent. Economists expect Britain's inflation rate to reach 2.2 per cent, the fastest pace since 2018, while in Sweden the outcome might show a temporary drop to 1.3 per cent. UK labour market data due may also be relevant here, indicating if wage pressures are building.

With that backdrop, comments from policymakers in both those countries are also likely to attract attention. Riksbank governor Stefan Ingves will feature in a panel discussion on Tuesday at a conference focused on inflation, while Bank of England policy makers Dave Ramsden and Michael Saunders will speak on following successive days. BLOOMBERG