Consumer inflation in Tokyo grew at a slower pace than expected in August, but the core figure, which excludes fresh food and energy costs, remained at its highest level in over 40 years, indicating that inflationary conditions in Japan remain high and putting pressure on the Bank of Japan to eventually tighten policy.
Fed Chair Jerome Powell reiterated that the Fed's inflation target will remain at 2% and that they are prepared to raise rates further if necessary, despite concerns of an economy that has re-accelerated above expectations.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
Bank of Japan Gov. Kazuo Ueda explains that price growth is slower than the target of 2%, leading officials to continue their current monetary-policy strategy of easing.
Japan's inflation is "clearly in sight" of the central bank's target, according to board member Naoki Tamura, suggesting the possibility of ending negative interest rates early next year.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
Pakistan's inflation rate remained above target in August at 27.4%, driven by reforms linked to an IMF loan that have fueled price pressures and declines in the rupee currency.
Former Bank of Japan board member Goushi Kataoka believes that the central bank can only shift away from its easy monetary policy once it has achieved its 2% inflation target sustainably, with wage negotiations in 2024 playing a key role in this process. Kataoka expects the Bank of Japan to gradually remove its yield curve control and negative interest rate policies before exiting its easy policy. He also emphasizes the importance of cooperation between the Japanese government and central bank in achieving the inflation target.
Japanese long-term interest rates and the yen rose after Bank of Japan Governor Kazuo Ueda hinted at the possibility of ending the bank's negative interest rate policy.
Japan's ruling party lawmaker Hiroshige Seko supports maintaining an ultra-loose monetary policy, following comments by the Bank of Japan governor that caused the yen and bond yields to rise.
The European Central Bank is expected to see inflation in the euro zone remain above 3% next year, which strengthens the case for an interest rate increase.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
The Federal Reserve faces a critical decision at the end of the year that could determine whether the US economy suffers or inflation exceeds target levels, according to economist Mohamed El-Erian. He suggests the central bank must choose between tolerating inflation at 3% or higher, or risking a downturn in the economy.
Consumers' inflation expectations have reached the lowest level since March 2021, with expectations of a 3.1% rise in prices over the next year, according to new data from the University of Michigan, signaling a positive sentiment for the Federal Reserve's fight against inflation.
The Bank of Japan is expected to maintain ultra-low interest rates and reassure markets that monetary stimulus will continue amidst China's economic struggles and the global impact of US interest rates.
Euro zone consumer inflation in August remained more than twice the European Central Bank's target, with a year-on-year rate of 5.2%, although slightly lower than initially estimated, according to Eurostat.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
The Japanese yen remains weak against the U.S. dollar due to high U.S. Treasury yields and anticipation of the Bank of Japan maintaining its current monetary policies, while the dollar is boosted by the prospect of higher U.S. interest rates.
Asia-Pacific markets fell as the Bank of Japan kept rates unchanged and noted a "moderate recovery" in the economy, while Japan's private sector activity expanded at its slowest pace since February and the country's August inflation rate remained above the BOJ's target for the 17th straight month.
Japan's core inflation remained steady in August, staying above the central bank's 2% target for the 17th consecutive month, signaling broadening price pressure and potentially increasing the case for an exit from ultra-easy monetary policy.
Japanese consumer inflation grew above expectations in August, potentially signaling a move away from negative interest rates as the Bank of Japan meets to discuss its monetary policy.
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