Will CPI Next Week Keep Fed On Course?

Wednesday, 12 February 2025, 15:30 – US CPI (YoY) (Jan)

The U.S. Consumer Price Index (CPI) rose 2.9% year-over-year in December, in line with market expectation and up from 2.7% in November. The uptick in number was driven by higher energy and food prices. Gasoline surged 4.4% due to supply constraints, while food costs rose amid supply chain disruptions and weather impacts. Airline fares and vehicle prices also contributed, reflecting strong consumer demand. Despite the Federal Reserve’s tightening, inflation remains sticky, and with potential tariff changes ahead, the upcoming release could edge closer to 3%.

Thursday, 13 February 2025, 15:00 – UK GDP (YoY) (Q4)

As of the third quarter of 2024, the United Kingdom’s Gross Domestic Product (GDP) increased by 0.9% year-over-year, a slight revision from the preliminary estimate of 1.0%. This modest growth was primarily driven by household spending, which rose by 1.5%, and gross fixed capital formation, which saw a 3.9% increase, including a notable 5.8% rise in business investment. However, government expenditure grew by only 0.8%, less than initially anticipated. The services sector experienced minimal growth at 0.1%, the construction sector expanded by 0.8%, while the production sector contracted by 0.2%. Looking ahead, the International Monetary Fund (IMF) has adjusted its forecast for UK GDP growth in 2025 from 1.5% to 1.6%. However, the Bank of England is expected to lower its 2025 growth forecast from 1.5% to approximately 1%, reflecting concerns over economic stagnation. Given these mixed signals, it is anticipated that the UK’s GDP growth may remain subdued in the near term, with potential for slight improvement depending on domestic and global economic developments.

Thursday, 13 February 2025, 09:00 – German CPI (MoM) (Jan)

In January 2025, Germany’s Consumer Price Index (CPI) decreased by 0.2% compared to December 2024, marking a reversal from the 0.5% increase observed in the previous month. This decline was primarily driven by a moderation in energy prices, which had been a significant contributor to inflation in previous months. Additionally, the services sector, including areas like insurance and public transportation, saw price increases that were less pronounced than in previous months, contributing to the overall moderation in inflation. Looking ahead, the inflation rate is expected to remain subdued given current economic trends.

Friday, 14 January 2025, 15:30 – US Retail Sales (MoM) (Jan)

In December 2024, the European Central Bank (ECB) reduced its key interest rates by 25 basis points, setting the deposit facility rate at 3.00%, the main refinancing operations rate at 3.15%, and the marginal lending facility rate at 3.40%, effective December 18, 2024. The decision was based on easing inflationary pressures, with headline inflation dropping closer to the ECB’s 2% target. Underlying inflation dynamics also showed signs of slowing, particularly in services and core goods, reflecting lower demand and improved supply chain conditions. Additionally, the ECB cited the effectiveness of previous rate hikes in curbing inflation as a factor for initiating cuts, aiming to support economic activity and prevent a more significant slowdown across the eurozone. For the upcoming release, recent statements from ECB officials suggest a consensus toward further gradual rate cuts, contingent upon economic data. Dutch central bank head Klaas Knot and Bank of Greece Governor Yannis Stournaras also indicated support for additional cuts, citing supportive economic data. Market expectations point to a potential reduction of the deposit rate to 2% by the end of 2025, aligning with the ECB’s neutral rate estimates.

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