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The main data release in Europe Wednesday is the publication of UK inflation at 0700BST. In the North Americas the release of Canadian inflation at 1330BST will be closely watched before the focus shifts to the FOMC policy decision at 1900BST.
UK inflation seen rising further
UK consumer prices are forecast to increase further in May with markets looking for an uptick of the CPI to 1.8%, which would mark the highest level since January 2020 where the index also registered at 1.8%. May's uptick would mark the third successive gain, but the 22nd straight reading below the BOE's 2.0% target. Inflation rose to 1.5% in April, mainly on the back of energy inflation as gas prices rose 9.8% on the month, while electricity prices were up 9.1% in April.
Looking ahead, energy inflation is likely to remain the main driver of CPI growth as the index is affected by base effects. Moreover, as the economy is gradually opening up, service inflation is likely to accelerate as well. Markets are looking for core inflation to tick up 0.2pp to 1.5% in May. Output as well as input inflation are also projected to rise further to 4.5% and 10.6%, respectively.
Source: Office for National Statistics
Canadian inflation expected to accelerate
The annual consumer price index in Canada surged to 3.4% in April, showing the highest level since May 2011. The increase was mainly driven by base effects as prices fell sharply at the beginning of the pandemic. For example, gasoline prices rose 62.5% y/y in April 2021, its largest increase on record, compared to a sharp drop in April 2020. Excluding energy prices, inflation was up 1.6% in April. In May, markets expect the CPI to tick up further to 3.5%, while the monthly rate is seen at 0.4%.
FOMC seen on hold
The FOMC is expected to cheer steady progress in the Covid recovery but maintain that it will still take time before the economy meets the Fed's "substantial further progress" bar for tapering asset purchases. Chair Jay Powell will likely play down any additional projections for liftoff by the end of 2023, though it's a close call whether the median dot will move forward into 2023.
Forecasts for growth and inflation are expected to get a small upgrade, while projections for the labour market may be little changed.
The main events to look out for on Wednesday include speeches by ECB's Frank Elderson and Luis de Guindos as well as BOC's Tiff Macklem.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.