What happened last week?
Inflation news dominated economic news again. The Canada’s Consumer Price Index (CPI) and the U.S. Personal Consumption Expenditures price index (PCE) were released last week. Creating price stability is a mandated goal of both the Bank of Canada and the Federal Reserve. Once inflation is predictable and approaching central banks’ goal levels, interest rates could be reduced; as long as other indicators like jobs and Gross Domestic Product also cooperate.
On Tuesday, StatsCan reported that Canadian CPI rose 0.6% in May and 2.9% on a year-over-year basis, up from 2.7% in April. The increase in overall inflation is an unwanted result and is not encouraging Bank of Canada rate reductions, which could foreshadow Fed moves. StatsCan release CBC and CPI
On Friday morning, before markets opened, the U.S. Bureau of Economic Analysis delivered the PCE release. On a year-over-year basis, the PCE price index decreased 0.1%. Excluding food and energy, the core PCE decreased 0.2% in May from April on a year-over-year basis. Core PCE achieved its lowest reading since March 2021, which matched expectations and could lead to future rate reductions.
The Federal Reserve tracks PCE more closely than CPI, and Core PCE is the most important inflation measure for the U.S. central bank. CPI computes the increase in the price of a basket of goods and services using a weighted average method, while the PCE computes personal spending in-total. Using total spending data, the PCE also accounts for changes in consumer behaviour and includes shifts from name-brands to generic brand and the removal of luxury or higher-end purchases from consumers’ spending. CNBC and PCE CPI definition PCE definition
Interest rates will continue to rely on the progress against inflation and employment as the twin mandates for Federal Reserve. The next Fed rate announcements are scheduled on July 31st and September 18th.
What’s ahead for this week and beyond?
In the U.S, construction spending, factory orders, durable goods orders, purchasing managers indexes, ADP’s employment report, and international trade will be released. Thursday marks Independence Day, and Friday brings the non-farm payroll report for June.
In Canada, after Monday’s Canada Day imports, exports and trade balance, and an employment report will follow in a relatively light week for economic announcements.
Globally, Japan’s household spending, house prices, the U.K.’s mortgage lending, and a flash reading of Harmonized Index of Consumer Prices and Producer Price Index for the Eurozone will be announced.