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Economic preview: Inflation in view for top policymakers

By Neil Dennis

13:43, 17 September 2021

Inflation chart with arrow moving up and percent signs underneath
Central bank policy leaders face a week of tough decisions ahead – Photo: Shutterstock

Monetary policy decisions dominate the economic calendar next week, with announcements from the central banks of the US, China and Japan on Wednesday and the Bank of England on Thursday.

Further growth and inflation assessments are absent next week ahead the decisions, so central bankers will have to run with what information they’ve already managed to glean over the past weeks.

US Federal Reserve (the Fed)

The US central bank’s most recent shock will have been Thursday’s much-stronger-than-expected retail sales data. Forecast to drop in August, sales remained robust in the face of increasing numbers of COVID-19 infections and the fading out of stimulus payments.

Added to Wednesday’s inflation data showing consumer price indices (CPIs) remained stubbornly high at 5.3% in August – down from July’s 13-year high of 5.4% – the Fed could be forgiven for thinking price pressures may not be quite as “transitory” as it previously believed.

However, last week’s substantial miss on non-farm payrolls may convince the Federal Open Market Committee (FOMC) members that enough slack remains in the labour market to warrant further accommodative policy for some time to come.

James Knightley, chief economist at ING, believes the FOMC could use Wednesday’s meeting to tee-up a November announcement on the beginning of tapering of its monthly asset purchases.

“For now, the most we can expect is cautious optimism in the statement, with a bit more explicit support for tapering this year from Jerome Powell’s press conference,” Knightley added.

Indeed, for the time being, the Fed is expected to keep its main interest rate at 0%–0.25% and maintain its bond purchasing at $120m a month.

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Bank of England (BoE)

While UK retail sales fell by more than expected in August, the headline annual inflation rate continued higher, hitting 3.2% in August as input costs for manufacturers and services remained underpinned by materials and staff shortages.

Meanwhile, surging gas and electricity prices are likely to have a similar underpinning effect in the weeks to come.

The labour market remains robust, with data this showing that the rate of unemployment dipped to 4.6% in the three months to July, from 4.7% in the previous three months. More importantly, wage data showed that, at 8.3% growth, consumer activity could easily rebound to further compound the inflation outlook.


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This creates a puzzling mix for investors trying to interpret the Bank’s next move. Most analysts believe the BoE won’t move on interest rates until the end of 2022 or beginning of 2023, but bond markets appear closer to pencilling in a small move – from 0.1% to 0.25% in the first quarter of 2022.

“It is not obvious how the Monetary Policy Committee (MPC) should interpret the inflation data,” said Ruth Gregory, senior UK economist at Capital Economics. She suggests it could announce an end to its net asset purchases on Thursday, curbing the programme £30bn ($41.2bn) short of its £895bn target.

"The risk is that inflation expectations keep rising and that the MPC judges in 2022 that they are too big to ignore, whatever is happening to the real economy," she added.

Best of the rest

China’s policy announcement is not expected to deliver any surprises on Wednesday, and while Japan struggles to generate any kind of inflation, in spite of its negative interest rate, its central bank is also expected to make no significant announcement.

Most other data releases next week are peripheral, although preliminary surverys of purchasing managers in the UK, US and eurozone manufacturing sectors will provide some further anecdotal indications of any persistence in underlying price pressures.

Economic highlights 20–24 September


  • UK – Rightmove house price index, September


  • Australia – Reserve Bank of Australia meeting minutes
  • UK – public sector net borrowing, August
  • US – housing starts, August 
  • US – current account Q2


  • China – interest rate decision
  • Japan – interest rate decision
  • US – existing home sales, August
  • Eurozone – consumer confidence, September
  • US – interest rate decision/FOMC press conference


  • UK – interest rate decision
  • UK – IHS Markit manufacturing purchasing managers’ index (PMI) preliminaries, September
  • Eurozone – IHS Markit manufacturing PMI preliminaries, September
  • US – IHS Markit manufacturing PMI preliminaries, September
  • US – Federal Reserve Bank of Chicago national activity index, August
  • US – Federal Reserve Bank of Kansas manufacturing index, August


  • UK – Growth from Knowledge (GfK) consumer confidence, September
  • Japan – Consumer Price Index, August
  • Germany – Ifo business climate index, September
  • US – new home sales, August 

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