After Friday's blowout jobs report, attention now turns to inflation. Economists expect headline CPI (Friday) to rise by +0.4% month-on-month in August, up from +0.07% previously, while core CPI is expected to print at +0.2% month-on-month, broadly unchanged from July’s +0.22%. Higher gasoline prices are likely to support the headline reading, while core inflation should continue to benefit from gradually moderating shelter costs (which however are turning higher again per Case-Shiller). If realized, the forecasts would leave headline CPI broadly unchanged at 3.4% on a year-on-year basis while core inflation edges 10 bps lower to 2.4%.
Ahead of that, the PPI (Thursday) will provide another important input into the inflation outlook. Economists expect PPI to imply a +0.3% month-on-month increase in core PCE, up from +0.2% in July, leaving the annual rate rising to 4.6% from 4.2%. The remainder of the US calendar is relatively quiet, with markets closed today for the Labor Day holiday. However, the preliminary University of Michigan consumer sentiment survey (Friday) will also attract attention. Economists expect sentiment to decline to 51.0 from 51.7 in August, while the survey’s inflation expectations measures will be closely watched.
In Europe, the ECB policy decision (Thursday) will be the key event. DB's European economists expect a 25bp rate increase, taking the deposit rate to 2.50%, and investors will focus on any guidance regarding the likelihood of further tightening. DB economists also expect an additional hike in December. They have also upgrade
