US inflation is set to back Fed pause after robust jobs data

Underlying US inflation probably cooled only a touch at the close of 2024 against a backdrop of a resilient job market and steadfast economy, supporting the Federal Reserve’s go-slow approach to further rate cuts.

The consumer price index excluding food and energy is seen rising 0.2% in December after four straight months of 0.3% increases, according to the median projection in a Bloomberg survey of economists. The core CPI, a better snapshot of underlying inflation, is forecast to have risen 3.3% from a year earlier — matching readings from the prior three months.

The annual figure suggests progress toward tamer inflation has essentially stalled, at a time when the labour market and demand show scant signs of distress. Employers added more than a quarter million jobs in December, well above forecasts, and the unemployment rate unexpectedly fell, according to government data released on Friday.

The jobs figures were followed by a consumer survey that showed a spike in long-term inflation expectations. Some 22% of those polled by the University of Michigan reported that buying big-ticket goods now would enable them to avoid future price hikes — a share that matches the largest since 1990.

Economists at some of the biggest US banks pared their forecasts for more rate reductions after the jobs report. Fed officials in December indicated that they’d only lower their benchmark twice in 2025, a less aggressive outlook than they had in September, and recent comments suggest even more restraint.

“Recent FOMC communications indicate several members see the disinflation process as temporarily stalled, or see risks that it could. December’s CPI report is likely to support the view that it has indeed stalled, adding to the case for a careful approach to monetary-policy decisions in coming quarters,” say Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou & Chris G Collins, economists at Bloomberg.

According to economists at Morgan Stanley & Co, recent momentum in the economy can be chalked up to elevated household net worth, pent-up spending on automobiles, and wage growth that’s outpacing inflation.

Wednesday’s CPI report will be followed a day later by December retail sales numbers, which are expected to confirm robust spending during the holiday season.

Meantime, Fed data on Friday may indicate manufacturing is stabilizing, albeit at a depressed level. Economists project a 0.2% gain in December factory output, in line with November’s advance — the first back-to-back increase since February-March.

In Canada, US President-elect Trump’s threatened tariffs will be the overriding focus, with outgoing Prime Minister Justin Trudeau convening provincial premiers to discuss responses and Energy Minister Jonathan Wilkinson visiting Washington in a last-ditch bid to avert the crisis.

Elsewhere, UK inflation data will draw attention after a week of market ructions, while China and Germany release economic growth numbers.

The week brings trade figures from across the region, providing a snapshot of commerce at the end of 2024 before any potential tariffs are announced by the US. The flow of data from China continues, with key economic readings including gross domestic product late in the week.

The region’s biggest economy will be the main focus, kicking off with trade balance and export data for December, with analysts expecting to see activity remaining firm as global customers placed orders ahead of potential US levies.

India, Indonesia and Singapore also release trade figures, while South Korea supplies trade price data which should provide an indication of demand.

In central banking, South Korea officials are expected to cut the main lending rate for the third time in a row. The economic outlook there has dimmed amid political turmoil, slowing domestic demand and expectations of a slide in exports, which drive growth.

Bank of Japan Deputy Governor Ryozo Himino speaks Tuesday, and wages rising at the fastest pace in three decades could clear the way for further rate hikes. Indonesia’s central bank also announces its latest rate decision after holding at the prior meeting.

China caps the week with a slew of data. Home prices likely continued their slide — though perhaps at a slower pace. Industrial production probably held firm and retail sales accelerated on the back of stimulus measures. GDP is set to show the economy managed to hit the “around 5%” annual growth target for 2024, something President Xi Jinping already announced at the end of December.

China’s Ministry of Commerce said Sunday that the country will “vigorously” boost consumption and stabilise foreign trade and investment this year.

Amid the deluge, Australia releases a number of labour market figures and joins Thailand in providing a look at consumer confidence. Malaysia reports advance GDP, which is expected to show a slower fourth quarter. And Indian consumer prices are seen weakening slightly.