Euro-Area Inflation to South African Strikes: Global Economy

Coming up in the global economy this week, euro-area inflation may have picked up in November from a four-year low the prior month, demand for U.S. durable goods excluding transportation equipment probably improved for the first time in four months and the Brazilian central bank will probably increase its benchmark interest rate. Elsewhere, strikes by auto and mine workers probably caused South Africa’s economy to slow last quarter, while Sweden’s rebounded after shrinking from April through June.

EURO-AREA INFLATION

-- Economists forecast a report on Nov. 28 will show prices rose 0.8 percent in November. While that’s up from an October reading of 0.7 percent that was the weakest since November 2009, it remains short of the European Central Bank’s target of just under 2 percent. The slowdown last month prompted a surprise ECB rate cut.

-- “We have revised down our euro area inflation projection for 2014 to average 0.9 percent,” Barclays Plc economists Antonio Garcia Pascual and Francois Cabau wrote in a research note. “We continue to highlight downside risk to our inflation scenario -- at odds with the ECB’s balanced inflation scenario.

‘‘Should the downside risks on both economic growth and inflation materialize at the beginning of 2014, we think the ECB could possibly cut rates further and launch a securities purchase program.’’

-- ‘‘Increasingly subdued inflation on a global scale is no accident in an environment where all major economies have embarked on a program of aggressive debt deleveraging and pursuit of increased competitiveness,’’ Frederic Pretet, inflation and rates strategist at Scotiabank in Paris, wrote in a research note. ‘‘With no leeway on the exchange rate for individual countries within the euro zone, improving competitiveness has been achieved through labor market reforms and job destruction. This has contributed to increased economic slack and hence downward pressure on inflation. Indeed, compared with other major economies, the euro zone shows the biggest gap between the NAIRU and the unemployment rate. With little change expected any time soon, this is likely to exacerbate the risk of deflation in the region.’’

U.S. DURABLE GOODS

-- Orders for long-lasting goods probably fell 1.9 percent in October after rising 3.7 percent the prior month, reflecting a pullback in demand for commercial aircraft, according to economists surveyed before a Nov. 27 Commerce Department report. Bookings for non-military capital equipment excluding planes, probably climbed after falling in September.

-- ‘‘Firms may have been reluctant to order new equipment ahead of the government shutdown given the high uncertainty of the outcome,’’ economists at Bank of America Corp. wrote in a Nov. 21 research note. ‘‘As firms realized the worst case outcome would not happen, we believe that they went ahead and unleashed their ‘on hold’ orders.’’

-- Economists at Scotiabank aren’t as sanguine. ‘‘ Core capital goods orders excluding aircraft and defense have fallen for two of the past three months and put in a weak Q3,’’ wrote Derek Holt from Toronto. ‘‘Further weakness is possible not only in response to the lagged rate effects, but also because this will be the first investment report covering the government shutdown period.’’

BRAZIL RATES

-- Brazil’s central bank on Nov. 27 probably will raise its benchmark interest rate by 0.5 percentage point to 10 percent, extending the world’s largest monetary tightening cycle as inflation hovers above its 4.5 percent target.

-- ‘‘A signal that the central bank will continue to raise rates will increase its credibility,” Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo, said by telephone. “Rates will go all the way to 11 percent by March.”

-- “Inflation is not falling quite as fast as some had hoped, particularly the food component,” Neil Shearing, chief economist for emerging markets at Capital Economics Ltd., said by phone from London. “That means the central bank will remain squarely focused on above-target inflation.”

JAPAN INFLATION

-- A Nov. 29 report is projected to show Japan’s inflation gauge accelerated to 0.2 percent in October from a year earlier, matching a 15-year high. That’s an indication surging energy prices in the wake of the nuclear industry’s shutdown are feeding through to broader cost of living increases.

-- Yet stoking inflation in Japan will only be effective if wages rise in response, according to JPMorgan Chase & Co. “Core wages, which have been subdued, are regarded as a key variable to augur the success of Abenomics,” Masamichi Adachi, a senior economist at JPMorgan in Tokyo, said in a research report. “In our view, wages will rise to some extent next year, as the labor market continues to tighten, if gradually. However, the secular shift of workers from full-time workers, through retirement, to part-timers, through new jobs, including the rehiring of retirees with lower wages, that is weighing on average wages likely will continue.”

SWEDEN’S ECONOMY

-- A Nov. 29 report will probably show Sweden’s economy expanded 0.3 percent in the third quarter after contracting 0.2 percent in the previous three months, according to Danske Bank A/S. The expansion will be propelled by modest growth of net exports, consumption and investments, while inventories will have a “big” negative effect, Danske Bank said. The bank forecast annual growth of 0.4 percent.

-- The forecast contains “a big downside risk,” Roger Josefsson, Danske Bank A/S Stockholm-based chief economist, said. A faster expansion than the 0.4 percent forecast by the central bank is unlikely to deter the regulator from cutting its main lending rate by at least a quarter percentage point next month because inflation is “too low,” he said.

SOUTH AFRICA’S GDP

-- South Africa’s economy, Africa’s biggest, slowed down in the third quarter from 3 percent in the previous three months, following strikes by auto and mine workers, a Nov. 26 report by the statistics agency will probably show.

To contact the reporter on this story: Carlos Torres in Washington at ctorres2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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