Eurozone core inflation expected to show an increase in March

Main Events for the Week Ahead, AUD and Euro Looking at CPI March Inflation

Posted Monday, March 27, 2023 by
Skerdian Meta • 3 min read

Eurozone core inflation expected to show an increase in March

This week’s economic calendar is less busy, with a few releases that could impact the markets, but unlikely to change the overall sentiment, unless there are further developments in the banking crisis. On Wednesday, the CPI inflation report from Australia is expected to show a further slowdown from February’s 7.4%, which should push AUD/USD down, since this pair has shown weakness while other major currencies have been making decent gains against the USD.

China’s Manufacturing and non-Manufacturing PMI reports are also due this week and are expected to show a slowdown, which might weight further on risk assets. That will be followed by the Eurozone CPI inflation report, which is expected to show a slowdown to0 7.1% from 8.5% in February, but core inflation is expected to tick higher from 5.6% to 5.7%. Additionally, the Canadian GDP report will be released on Friday which is expected to show a decent bounce by 0.4% after a 0.1% contraction in December.

Monday: German Ifo Survey (March)
Tuesday: US Advanced Goods Trade Balance (Feb), US Richmond Fed (March).
Wednesday: Australian CPI (February).
Thursday: German Prelim CPI (March), US GDP (Q4) & PCE Prices (Q4).
Friday: Japanese Tokyo CPI (February), Chinese Official PMIs (February), EZ Flash CPI (March), US PCE (February), Canada GDP (January)

Australian CPI:

The Consumer Price Index (CPI) is predicted to have slightly cooled to 7.2% from January’s 7.4%, with a forecast range between 6.7-7.7%. However, desks have warned that the metric is volatile, as last month’s release showed a surprise 3.6% decline in clothing and footwear prices. Analysts at Westpac have noted that the February survey will incorporate quarterly data for various sectors, including restaurants, household services, motor vehicle services, urban transport fares, communication, and insurance. Westpac’s 7.4% annual forecast is based on a 0.8% increase for the month.

Japanese Tokyo CPI:

The Core Tokyo Consumer Price Index (CPI) is expected to have eased to 3.1% from 3.3%, due to stabilizing energy prices and base effects. The release is viewed as a leading indicator of the national metrics, which will be released in a couple of weeks. Japan’s headline CPI in February fell mainly due to government energy subsidies, while food prices experienced a slight increase, with non-fresh food contributing the most to the increase. The “super-Core” CPI, which excludes fresh food and energy, rose more than expected due to higher import costs, accelerating consumer goods prices, and faster inflation in clothing, footwear, and medical supplies. According to analysts at Pantheon Macroeconomics, following the February national release, the Bank of Japan’s upcoming meeting on April 28th, led by new governor Kazoo Ueda, is expected to maintain easy policy settings due to international banking fears. Pantheon believes that Ueda will likely maintain that Japan’s economy requires easy monetary policy throughout the year, while exploring options to adjust the yield curve control policy for sustainability.

EZ Flash CPI:

The headline HICP is expected to decrease to 7.3% Y/Y in March from 8.5% in February, while the super-core metric is expected to increase to 5.7% Y/Y from 5.6%. The prior report showed a small decrease in the headline rate, while the super-core reading unexpectedly rose, which was attributed to unfavorable base effects. Credit Agricole expects a significant decline in headline inflation to 6.8% Y/Y for the upcoming release due to negative base effects for energy, one year after the outbreak of the Ukraine war. However, the bank warns that food and core inflation may be stickier, with the former slowing only slightly to 5.5%. This release is the first of two inflation reports due before the May 4th ECB meeting and will not be the final factor in cementing expectations for the event. Market pricing is currently split on whether the ECB will maintain rates or opt for a 25bps increase. However, it is important to note that the current banking turmoil in the Eurozone may cause markets to be more dovishly priced than they would be if this selling pressure abates.

US PCE, Personal Income and Spending:

In February, Core PCE is expected to rise by 0.4% compared to a 0.6% increase in January. The annual rate is expected to moderate to 4.3% from 4.7%. Goods prices are the main driver of disinflation, while shelter and other services remain strong. The monthly headline inflation is expected to be similar to core, but the annual measure should drop to 5.1% due to an easy base effect. Personal Income in the US is expected to rise by 0.3% in February, which is lower than the 0.6% in January. Personal Spending is also expected to rise by 0.3%, down from the previous month’s +1.8%, which was supported by a one-off rise in social security payments. Credit Suisse does not expect a mean-reversion lower, but they anticipate growth to stagnate in the months ahead. There are likely to be some upward revisions to January consumer spending, which would further solidify the outlook for Q1 GDP growth.