Monday will start quietly, with the US having a bank holiday for Martin Luther King Jr. Day, but Canada getting its inflation data printed. On Tuesday, the UK will release changes in the number of claimants, the average earnings index by 3m/y and the unemployment rate.
Inflation data will come from the UK on Wednesday while Australia will publish its employment changes and unemployment rates on Thursday. In the US, attention will be paid to October PCE data and final GDP Q/Q as well as the main PCE price index M/M. New Zealand will also release its inflation data.
Finally, on Friday, the Bank of Japan will announce its monetary policy decision, while the Eurozone, UK and US will receive their flash manufacturing and services PMI data.
This week will also include the annual meetings of the World Economic Forum in Davos.
In Canada, the consensus for CPI m/m is -0.4% compared to 0.1% previously. The average CPI y/y is expected to decline to 2.7% from 2.8%, the trimmed CPI y/y is also expected to decline to 2.7% from 2.8%, while the general CPI y/y is expected to remain unchanged at 2.8%.
The Bank of Canada will monitor this release closely to assess whether inflation pressures remain above its 2% target. Headline CPI is still expected to print above target, while underlying price pressures are likely to see only a modest improvement, with core inflation remaining relatively stable.
Energy prices are expected to provide some relief, particularly due to lower gasoline costs, which should push energy inflation into negative territory. However, analysts warned that this easing could be offset by continued strength in food prices, which remain high and could be boosted by base effects related to last year’s temporary tax measures. Especially grocery inflation is continuously increasing.
Overall, inflation excluding food and energy is expected to moderate, although it is likely to remain above the Bank’s target, suggesting that price pressures are only gradually easing. From a monetary policy perspective, the BOC is expected to keep rates unchanged for now, with the market expecting the next move to be a rate hike, although not this year.
In the UK, the consensus expectation is for the number of claimants to rise to 18.8K, up from 20.1K previously. The average earnings index is projected to decline by 3m/y to 4.6% from 4.7%, while the unemployment rate is expected to decline to 5.0% from 5.1%.
This week’s labor market data is likely to reinforce the Bank of England’s cautious stance on rate cuts. Although the unemployment rate is expected to decline slightly, analysts view this as temporary and expect wage growth to continue to moderate. If confirmed, these trends could potentially open the door to further policy easing as early as March.
As for UK inflation, the consensus expectation is for headline CPI to rise to 3.3% from 3.2%, with core CPI also rising to 3.3% from 3.2%.
ING analysts say the release will largely depend on airfares, which typically increase during holiday periods. Last year’s seasonal growth was unusually low, so a greater Christmas-related surge in ticket prices this time could lead to inflation on services.
The magnitude of this move will depend on the timing of the ONS price collection, creating a small risk of a temporary increase that will likely reverse in January but could appear uneconomic for the Bank of England in the near term.
It will also be important to keep an eye on food prices, as they pose the risk of short-term upside. However, trends in other European countries point towards easing price pressures. Overall, ING expects UK inflation to return to the BOE’s 2.0% target around April.
In Australia, the consensus forecast is for employment to increase by 26.5K, down from 21.3K previously, while the unemployment rate is projected to rise to 4.4% from 4.3%.
Employment data came in weaker than expected in November, a significant decline that mirrored the slowdown in job growth in recent months. On a three-month basis, the pace of employment gains has slowed well below historical norms, lending credence to the idea that the labor market is slowing down.
Seasonal instability around the summer period has also become more pronounced in recent years, reflecting post-pandemic changes in vacation patterns that continue to complicate seasonal adjustments.
Against this backdrop, the latest results should be seen as part of a gradual cooling down rather than a sharp decline. Westpac analysts expect a modest rebound in December, which is likely to offset some of November’s decline in employment. Still, underlying trends point to continued moderation rather than a return to strong hiring.
Despite November’s weak employment results, the unemployment rate did not increase. Instead, the modest decline in the number of unemployed reflected a decline in labor force participation, which dropped to 66.7% and helped keep the unemployment rate unchanged at 4.3%.
However, looking at month-on-month noise, the broader trend still suggests a gradual cooling of the labor market, with the three-month average unemployment rate higher than at the beginning of the year.
Looking ahead, modest improvements in participation are expected. Combined with a rebound in employment, this would push the unemployment rate slightly higher to about 4.4%, which represents a notable increase from a year earlier and reinforces the picture of a gradually softening labor market.
Wells Fargo analysts expect the RBA to keep the cash rate unchanged at 3.60% until the end of the year from a monetary-policy perspective. Any future move is more likely to raise rates, but this would require a clear re-acceleration of labor market strength and persistently elevated inflation.
In the US, the consensus for the core PCE price index m/m is 0.2% and the release will also include October data. The report is likely to confirm that underlying inflation remains contained despite continued tariff pressures.
The Fed will enter its blackout period ahead of its January 28 meeting for which current market expectations are that interest rates will remain unchanged.
In New Zealand, the consensus for CPI q/q is 0.5% compared to 1.0% previously. Inflation is expected to rise modestly in the December quarter, with consumer prices likely to rise by around 0.5%, leaving the annual inflation rate broadly unchanged at around 3.0%.
Quarterly growth is expected to be driven mainly by higher fuel costs and normal seasonal increases in travel and accommodation prices, partially offset by seasonal declines in food prices. Below the headline, underlying inflation pressures have continued to ease over the past year, with most key measures now within the 2-3% range.
At this week’s meeting, the BoJ is expected to keep rates unchanged at 0.75%. As a reminder, last year the Bank raised two rates, pushing borrowing costs to levels not seen in decades.
There were signs in December that additional rate hikes could be on the way, but the conditions for further tightening were not met, as data points since then have been mixed.
Inflation remains a concern in Japan, as it is still running above the BOJ’s target. However, uncertainty about wage dynamics, especially after softer-than-expected readings in November, has clouded the timing of the next move, especially if this weakness persists.
Additionally, renewed yen depreciation has added another layer of complexity, especially amid political uncertainty that could lead to looser fiscal policy and increased government spending. A weak currency risks increasing prices of imported goods, which could impact domestic spending.
For now, the BOJ is expected to keep rates unchanged in the near term, although risks appear tilted towards an earlier move and potentially a more aggressive tightening cycle if inflation pressures persist.
