US govt shutdown delays inflation data, deepens uncertainty for divided Fed

By Vince Golle and Craig Stirling

 

Two monthly jobs reports have fallen victim to the longest US government shutdown and a key inflation snapshot due in the coming week is also in jeopardy, illustrating a thickening data fog for a Federal Reserve that’s the most divided in recent memory. 

The Bureau of Labour Statistics was scheduled to report the October consumer price index on Thursday, yet the government’s closure has not only delayed its release but also halted in-person data collection. It’s increasingly likely the BLS will forgo issuing an October CPI report altogether.

 

The absence of official reports that inform policymakers about the trajectory of inflation and the job market will prolong a debate about whether another rate cut is needed at the Fed’s December meeting. While central bankers had the September CPI in time for their last meeting, they didn’t have an updated jobs report. 

 

Assuming the government reopens in the coming weeks and statistics start moving again, Fed officials will still be confronted with data compiled via retroactive surveys and other methods — if the figures are published at all. And while several private-sector reports on the job market are helping to fill the void of official data, alternatives to government inflation figures are harder to come by and more limited in scope.

 

The CPI and its core measure, which excludes more volatile food and energy costs, each rose a lower-than-forecast 3 per cent in September from a year ago. Alternative measures, like the Cleveland Fed’s “nowcast” CPI, suggest a similar outcome for October.

What Bloomberg Economics Says:

“Even if the government were to reopen, it’s unlikely the Bureau of Labor Statistics would be able to collect and process data for both the October and November CPI reports ahead of the December FOMC meeting. We think October’s figures would have greenlit a rate cut at the final meeting of the year.”

 

— Anna Wong, Stuart Paul, Estelle Ou, Eliza Winger, Chris G. Collins and Troy Durie, economists.

Still, following the Fed’s rate reduction in October, Chair Jerome Powell said a December cut wasn’t assured. For policymakers focused on the potential for inflation to re-accelerate, the absence of official figures is likely gives them further reason to hold next month. 

 

And while market odds still favor a December rate reduction, investors will monitor several appearances in the coming week by Fed officials, including John Williams, Raphael Bostic, Stephen Miran and Alberto Musalem.

 

Turning north, the Bank of Canada will release a summary of the deliberations behind its October rate cut, shedding light on why it deemed borrowing costs to be at “about the right level” as long as the economy and inflation evolve as expected. Prime Minister Mark Carney may announce a second tranche of fast-tracked major projects that aim to diversify trade and stoke growth.

 

Elsewhere, Chinese production and retail data, UK wage and growth numbers, and central bank meeting minutes from Japan to Sweden will be among the highlights. 

 

Asia 

The week in Asia began Sunday with data showing that China’s consumer prices unexpectedly increased in October, as holidays during the month boosted travel, food and transport demand.

 

India publishes price data Wednesday that economists predict will show inflation slowing in October to 0.4 per cent year on year, boosting the case for the Reserve Bank of India to resume rate cuts when it sets policy in December. 

 

Australia releases two key sentiment indexes on Tuesday, the Westpac Consumer Confidence gauge for November and the NAB Business Confidence index for October. 

 

Two days later, Canberra issues labor statistics that will show whether employment growth continued to slow and unemployment nudged higher in October, both of which would encourage the Reserve Bank of Australia to consider resuming rate cuts on Dec. 9.  

 

India’s trade statistics for October may be released, and the week ends with China’s monthly data blast that will likely underscore fragility in domestic demand. Growth in retail sales and industrial output both probably slowed in October, while the slide in investment in fixed assets and property accelerated. 

 

Also on Friday, New Zealand releases its manufacturing PMI for October after the gauge was slightly contractionary in the previous two months.

 

No central bank decisions are scheduled in Asia in the coming week, but the Bank of Japan on Monday will release the summary of opinions from its October meeting, the second straight gathering that featured two dissenters calling for a rate hike. The record may give an indication if authorities are leaning toward an increase in December, as about half of surveyed economists predict.

 

Europe, Middle East, Africa 

Upcoming data will inform UK officials on the economic backdrop following the Bank of England’s decision on Thursday to keep rates on hold while teeing up a cut for December. On Tuesday, labor statistics will probably show wage growth slowed slightly in the third quarter, while gross domestic product numbers two days later may point to a moderate weakening in growth in the same period.

 

BOE appearances will also draw attention. Deputy Governor Clare Lombardelli, policymaker Megan Greene and chief economist Huw Pill — all of whom voted in the majority for no change in rates — will speak on successive days, starting on Monday.

 

Over in the euro zone, remarks from several European Central Bank officials are on the calendar, including Executive Board members Isabel Schnabel and Luis de Guindos on Wednesday. The week will be quieter for data, with highlights to include Germany’s ZEW investor confidence on Tuesday and eurozone industrial production two days later.

 

The Nordics have a busy few days ahead following decisions by the Riksbank and Norges Bank to keep borrowing costs unchanged.  

 

In Sweden, minutes of its monetary meeting will be published on Tuesday, and the Riksbank will release its financial stability report on Thursday. Governor Erik Thedeen speaks in Frankfurt the following day.

 

Norwegian inflation figures are due on Monday, Norges Bank Governor Ida Wolden Bache is scheduled to appear in Amsterdam the next day, and the central bank’s own financial stability report is down for Wednesday.

 

Turning south, economists will watch how a mid-October fuel price hike filters through to inflation in Egypt early in the week. On Friday, Israel’s rate of annual price growth is expected to remain at 2.5 per cent in October, keeping policymakers cautious about easing monetary policy. 

 

Russian policymakers will watch October inflation data for evidence that it remains on a downward trend, after the central bank warned that elevated expectations may weigh on prospects for more rate cuts. Analysts expect GDP data to show that Russia’s economy continued to cool in the third quarter. 

 

It’s a big week for public finances in Africa. On Wednesday, South African Finance Minister Enoch Godongwana will deliver his medium-term budget in Cape Town, to be watched for signs of fiscal restraint as the government works to stabilize debt and reassure markets ahead of next year’s local elections. 

 

A tax windfall and spending restraint may help the National Treasury narrow deficit forecasts, but pressures to fund state companies and expand social programs risk eroding those gains and could weigh on the rand if fiscal consolidation falters.

 

On Thursday, Ghana’s Finance Minister Cassiel Ato Forson presents the second annual budget under President John Mahama — a key gauge of the administration’s economic direction. Investors will assess whether Forson maintains fiscal discipline under the International Monetary Fund program, and how he plans to finance the deficit.

 

A few monetary decisions are on the calendar in the wider region:

 

On Monday, Uganda is expected to keep its rate unchanged at 9.75 per cent for a fifth consecutive meeting as policymakers seek more clarity on the inflation outlook. 

Two days later in Zambia, the central bank may cut its benchmark after holding it at 14.5 per cent for two straight meetings. Inflation is easing, and the kwacha has strengthened nearly 23 per cent against the dollar this year. 

Romania’s central bank is expected to hold its interest rate at 6.5 per cent, waiting for a temporary spike in inflation to ease. Governor Mugur Isarescu will likely present the quarterly inflation report in the following days. 

Serbia’s central bank will decide the following day whether to resume easing after more than a year of keeping borrowing costs on hold. 

Latin America

Banco Central do Brasil early Tuesday posts the minutes of its Nov 4-5 rate meeting, where the board, led by Governor Gabriel Galipolo, kept the key rate at a near two-decade high of 15 per cent.

 

The minutes are unlikely to offer much in the way of guidance on the big question — that is, could BCB consider a rate cut in December — regardless of the likely deceleration in October’s inflation readings to be reported a hour later. 

 

Colombia’s October inflation data, if the early consensus holds up, may land with a thud at the central bank and among investors, especially after September’s bigger-than-expected rise.

 

The core print likely re-accelerated to top 5 per cent yet again, while the headline reading jumped closer to 5.5 per cent, both well above BanRep’s 3 per cent target.

 

The near-death experience for Argentina’s peso and economy ahead of the Oct. 26 mid-terms — coupled with expectations that devaluation has to be on the menu — likely raised the temperature on October consumer price data, due on Wednesday. Analysts’ year-end estimates have crept back up over 30 per cent.

 

In Peru, policymakers led by central bank chief Julio Velarde are expected to hold at 4.25 per cent for a second straight meeting. Guidance offered in the October meeting’s post-decision statement suggests that a line may have been drawn under the BCRP’s stop-and-go, two-year easing cycle.

 

The minutes of Banco Central de Chile’s Oct. 28 rate hold may not break much new ground: the bank hasn’t yet arrived at the terminal rate of its easing cycle, and is in a data-dependent mode.