Neil DennisUK rate-watchers at full attention please: inflation data is under the spotlight for signs of consumer prices peaking ahead of what the Bank of England hopes will be a dip back towards target levels.
The consumer price index (CPI) for June is published on Tuesday, along with the retail price index (RPI) and data on producer prices – a measure of inflation at the input level.
CPI rose by an annual 2.9% in May, a 0.1 percentage point premium on the Bank of England's first quarter Inflation Report forecast that consumer prices would peak at 2.8% late in the year.
June's annual CPI is expected to push up to 3%, further extending the gap in real wages as annual average earnings growth – published last week – slipped further to 1.8% in May from 2.1% in April.
With the inflation hawks at the BoE now numbering three out of the nine Monetary Policy Committee members, the central bank's interest rate dilemma deepens.
Do they soon act – lifting rates to stem inflation – or do they wait to see some improvement in wage growth?
"The wage squeeze being endured by millions of Britons has turned into a clear and present danger for the economy," says Mariano Mamertino, EMEA economist at the global job site Indeed.
Pricing pressures on manufacturers is starting to ease, as shown by May producer price data, where input costs – raw materials, services, etc – and output – also known as factory gate inflation – fell from April's levels.
How near is the European Central Bank to removing monetary stimulus? ECB policy meeting on Thursday - Source: Max PixelEurozone interest rate decision
The question on Thursday is: how near is the European Central Bank to tightening monetary policy?
It sounds increasingly hawkish, but few expect interest rates to move any time soon. Instead, the first move from the ECB is likely to be paring back its monthly asset purchases under its QE operations.
Such a move was hinted at in the minutes of the central bank's last policy meeting, although it is not expected to be announced at this week's policy meeting.
Tom Elliott, investment strategist at deVere Group,says: "The direction of travel for the central bank’s monetary policy is changing."
He adds: "But the pace of that change is likely to be glacial, given weak regional inflation pressures and a desire to avoid repeating the premature rate hike of 2011."
Haruhiko Kuroda: The Bank of Japan governor continues to try to stimulate price growth: BoJ policy meeting on Thursday - Source: Wikimedia CommonsBoJ interest rate decision
The Bank of Japan's interest rate decision on Thursday will be much easier as inflation remains well below the central bank's target rate.
Almost 60% of analysts polled by Reuters expect the BoJ to start tightening monetary policy by the end of 2018, but that leaves 40% believing rates will be on hold for longer.
Markets are certainly not pricing in any rate moves in the near future. Japanese government bond yields are negative up to the five-year maturity, and even the 10-year bond only yields 0.07%.
The central bank's main rate stands at -0.1%, as it has since January 2016, and no change is expected on Thursday.
