Global markets heat up! Japan's inflation hits a 2-year peak at 4%, BoJ rate hike looms. Australia doubles job growth forecasts while UK retail surprises with a 1.7% surge. Get ahead of market moves—critical insights on inflation, labor trends, and consumer spending in key economies.
Japan: Inflation Surges to Two-Year High, Pressuring the BoJ
Japan's national inflation accelerated more than expected, driven by higher food prices. According to data released early Friday, the Consumer Price Index (CPI) rose 4% in January, up from the previous 3.6%—the highest level in two years. Fresh food prices in Japan are experiencing their fastest increase in two decades, pushing overall inflation higher.
Excluding fresh food, core inflation accelerated to 3.2% from 3% in the previous month—the fastest pace since June 2023.
The sharp rise in inflation strengthens the case for the Bank of Japan (BoJ) to move towards a rate hike. Economists had previously expected the next increase to come around July, though they hadn't ruled out a possibility in March.
The latest inflation figures may fuel speculation that the BoJ could act sooner than expected, further supporting bets that the yen will outperform its peers in the coming period.
Australia: Strong Job Growth Challenges Rate Cut Expectations
Data released early Thursday underscored the resilience of Australia's labor market. According to the Australian Bureau of Statistics, the economy added 44,000 new jobs in January, more than doubling economists' forecast of 20,000. Meanwhile, the unemployment rate rose slightly to 4.1% from 4%, in line with expectations.
On Tuesday, the Reserve Bank of Australia (RBA) cut interest rates for the first time since 2020, lowering the cash rate to 4.1%. However, post-decision statements emphasized a cautious approach to further rate cuts.
Governor Michele Bullock highlighted that strong employment growth signals underlying economic strength, which could potentially delay the process of bringing inflation down.
Following the RBA's cautious stance, swap traders scaled back their expectations for four rate cuts this year. They are now fully pricing in just one additional cut, with the probability of further reductions dropping to 70%. This shift could support the Australian dollar against other currencies.
UK: Retail Sales Rebound, but Consumer Caution Persists
Following stronger-than-expected labor market and inflation data earlier in the week, retail sales figures released on Friday showed that consumer spending grew more robustly than anticipated at the start of the year.
According to the Office for National Statistics, retail sales in the UK rose 1.7% in January compared to the previous month, surpassing forecasts of a 0.3% increase and recovering from December's 0.6% decline. On an annual basis, spending was up 1% compared to a year earlier.
The data revealed that food sales saw their strongest growth since March 2020, offsetting declines in other categories and lifting overall retail figures.
The acceleration in retail sales should help ease some recession concerns, but consumers are likely to remain cautious with their spending. Households are still grappling with rising food and energy costs, while payroll tax increases loom on the horizon.
This dynamic will make it even more challenging for the Bank of England to strike a delicate balance between a sluggish economy and persistent inflationary pressures.