Intesa Sanpaolo: United States – Inflation surprised on the upside again in January, rising by 0.6% m/m both in terms of the headline and core indices. Monthly
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Weekly Economic Monitor – 11 February 2022
Intesa Sanpaolo – Research Department
In March, the ECB could therefore announce adjustments to its plan for the reduction of net purchases under the APP, in order to have a free hand in hiking rates in the closing quarter of 2022.
United States. The inflation genie is now out of the lamp . Inflation surprised on the upside again in January, rising by 0.6% m/m both in terms of the headline and core indices. Monthly price dynamics in 2022 will determine the pace at which monetary stimulus is removed. Pressures stem from excess demand for goods and labour. The latter factor will be decisive in our view in guiding the path of interest rates this year, and will make no concessions, keeping core inflation above 3.5% y/y until the end of the year. We raise our Fed Funds forecast, incorporating a 50bp change in March, followed by two consecutive 25bp hikes in May and June, for a total of 150bp in 2022. The projected end point for rates is in marginally restrictive territory, at 2.75% in 2023. The removal of monetary stimulus is made very uncertain by the simultaneous timing of rate hikes and the Fed’s balance sheet reduction.
Euro area . The clarifications provided by the ECB following the meeting of meeting of 3 February confirm that the outlook is evolving in such a way as to make more likely a rate hike before the end of the year. In March, the ECB could therefore announce adjustments to its plan for the reduction of net purchases under the APP, in order to have a free hand in hiking rates in the closing quarter of 2022.
The week’s market movers
In the Eurozone , the ZEW survey (the first to provide data for February) could drop back in February, due to the bullish dynamics of energy prices and geopolitical tensions linked to the Ukrainian crisis. Industrial output in the Eurozone is forecast higher in December, consistently with the data already made available by the major member states. The economic calendar for the euro area also includes the release of the second estimate of Eurozone GDP, expected to confirm the slowdown to 0.3% q/q in 4Q 2021, and the initial reading of Dutch GDP, expected to be moderately down (-0.2% q/q) in the same quarter. Data on French unemployment in 4Q is also due out, expected to drop slightly to 8%. Lastly, the final estimate of January inflation in France should confirm the flash estimate.
In the United States, the main event of the week will be the release of the minutes of the January FOMC meeting, expected to provide information on the path of interest rates and the balance sheet, confirming expectations for a rates liftoff in March. Among forthcoming data releases, the initial manufacturing surveys for February should confirm the expansion of activity in the sector. In January, retail sales and industrial output are estimated to have recovered after proving weak in December. Housing starts and existing home sales are expected to drop modestly in January, due to inventory shortages, high prices and rising mortgages rates.
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