Inflation Menace in Latin America Triggers More Hiking: Eco Week

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(Bloomberg) — Latin America’s fight against spiraling consumer prices is likely to shift to a new front this week, with Colombia set to become the region’s fifth major economy under an inflation-targeting regime to tighten monetary policy. 

The central bank in Bogota is all but certain to join peers on Thursday and deliver its first hike in half a decade. Around the same time, Banco de Mexico is likely to raise for a third straight meeting after mid-month inflation jumped. 

Long a menace to the region, inflation tumbled in Latin America last year as the coronavirus ravaged demand and output, prompting central banks to aggressively slash interest rates. At one point in 2020, annual consumer-price increases in all five economies were under 3%, and as late as the fourth quarter, all were within or under the target range.

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Now, with the pandemic easing and economies reopening, inflation has surged once again, forcing policy makers in Brazil, Chile, Mexico and Peru to rapidly reverse course and begin tightening cycles.

Brazil’s central bank, which was first to react, is farthest along. It’s pushed up the Selic rate by 425 basis points from a record-low 2% to 6.25%, most recently with a full-point hike. Chile and Peru both raised at each of their last two meetings, with more moves sure to come. 

Rate decisions in Latin America are among at least 12 scheduled around the world in the coming week. A new leader in Japan, the German election outcome, multiple appearances by Group of Seven central bankers, and a further acceleration in euro-zone consumer-price growth will also be among the highlights. 

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What Bloomberg Economics Says:

“A run of inflation readings for September in the euro area will almost certainly raise alarm bells next week. Prices are accelerating fast and surging energy costs and supply bottlenecks will only add to the pain.”

–For full analysis, click here 

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

U.S. 

In the U.S., investors will be watching for the latest data on durable good orders and pending home sales. 

Several Federal Reserve policy makers will be on the speaking circuit, giving their views on the economy after the central bank’s latest decision to keep rates near zero but signal that it’s getting ready to reduce it’s bond-buying purchases. 

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Fed Chair Jerome Powell and Treasury Secretary Janet Yellen are scheduled to testify to Congress on Tuesday and Thursday on the state of the pandemic recovery.

For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Asia

A new leader will emerge in Japan this week. Vaccine czar and reformist Taro Kono appears to have the edge over three rivals including, for the first time, two women. Given the complicated dynamics of the ruling party, though, the outcome is far from clear. 

The first task for the winner, who’s almost certain to become prime minister, will be to put together a stimulus package to regain momentum for an economy still in a state of emergency. Factory output, retail sales and the Bank of Japan’s Tankan survey of business sentiment will give a measure of the task at hand. 

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South Korea’s trade figures will be closely watched on Friday for the latest indication of how delta is impacting global trade. 

Thailand sets interest rates on Tuesday, and China’s PMI report for September will be closely watched on Thursday amid increasing signs the nation’s crackdown on the property sector is denting growth.

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

Europe, Middle East, Africa

Another busy week will kick off with the German election aftermath. Following Sunday’s vote, marking the change of regime from the chancellorship of Angela Merkel, coalition talks may take weeks or even months. 

Several central banker appearances will feature in the coming days, starting on Monday with European Central Bank President Christine Lagarde testifying to lawmakers, and Bank of England Governor Andrew Bailey delivering a dinner speech to economists. 

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The ECBs answer to the Fed’s annual Jackson Hole gathering kicks off on Tuesday. Normally held in the Portuguese retreat of Sintra, the event will be online for a second year. Powell, Bailey and BOJ chief Haruhiko Kuroda will all speak, as will ECB officials including Lagarde.

Among data highlights in western Europe, inflation in Germany on Thursday and for the euro zone on Friday are likely to prove of particular interest. 

The German rate is seen just under 4%, which would be a record since its European-standard index series began in 1997. In the euro-zone, economists anticipate price growth will reach 3.3%, the fastest since 2008. 

In the Nordic region, a speech by Riksbank Governor Stefan Ingves on Tuesday and minutes of last week’s monetary decision due on Thursday will take prominence following a surprisingly dovish outcome, where officials don’t anticipate foreseeable rate increases. 

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By contrast, the Czech central bank is poised to continue hiking. Officials may accelerate tightening, raising the benchmark rate by as much as a half a point to 1.25% to fight surging inflation.

Multiple monetary decisions take place throughout Africa too. Ghana’s central bank will probably hold its rate at a nine-year low to boost an economy that expanded at a slower pace than forecast in the second quarter. 

Angolan policy makers may also stay on hold after delivering a 450 basis-point hike in July. Kenya’s central bank will likely keep its rate unchanged for a 10th straight meeting as the pandemic and a drought weigh on economic output. 

In North Africa, Morocco is expected to leave its benchmark interest rate at an all-time low as new IMF reserves bolster the kingdom’s foreign-currency buffers, while Tunisia may also opt for caution and stay on hold. 

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Unemployment data next week will show whether Saudis are continuing to drop out of the labor force. It’s an unwelcome trend for the kingdom’s crown prince, who’s put job creation for young people at the center of his agenda. 

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

Latin America

Back to Latin America: aside from central bank decisions in Colombia and Mexico, other such meetings in the region this week are those of Guatemala, Dominican Republic, Trinidad and Tobago, and Uruguay, which raised its key rate in August. 

Data due in the region this week may show that the Mexican economy’s June slowdown continued into July, while its unemployment rate rose for a third month in August. Argentina’s GDP-proxy reading likely rose for a second month in July on the economy’s reopening and relaxed restrictions.

In Brazil, meanwhile, look for data on Thursday to show that its broadest measure of inflation fell to a 2021 low in September while unemployment also dropped back to 2020 levels, even as both are still running at a double-digit pace. The central bank on Tuesday posts minutes of last week’s meeting. 

Chile is due to post six separate demand and output indicators pointing to an overheating economy, with the August reading of its GDP-proxy indicator closing the week. 

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

©2021 Bloomberg L.P.

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