As Donald Trump commences his second term as US President, markets have been gripped with uncertainty over exactly what this will mean. Locally, the CPI data due out on Wednesday will be a key focus this week.
International Market Developments
Last week saw the publication of US inflation data, which had the potential to cause a stir in the market. The CPI inflation came in at 2.9% in December, while ‘core’ inflation was a touch lower than expectations at 3.2% (November: 3.3%). In response, markets rallied briefly.
Attention this week will turn to US politics and President Donald Trump’s inauguration yesterday. Since the Presidential election, markets have been gripped by uncertainty over what Trump may do in office. Questions persist over how high tariffs will rise, whether there will be retaliation and if Trump will keep his election promises over mass deportations and tax cuts, and indeed what this will mean for growth, inflation and interest rates. One of the biggest risks to the global macroeconomic outlook is the prospect of a trade war given Trump’s pronouncements over the implementation of tariffs and his statement that he would declare a national economic emergency, a declaration which he could use to rush through tariffs without Congressional approval.
In January’s World Economic Outlook Update (WEO), the IMF left its global growth forecasts for the next two years largely unchanged from October at 3.3% but noted divergences in economic performance and downside risks to the medium-term outlook. However, this masks the widening differences in economic performance, particularly in advanced economies, with upward revisions to US growth forecasts offsetting downward revisions to growth forecasts in some of the major economies in Europe.
Local Market Developments
The local December CPI data is due out on Wednesday at 10:00 local time and will be a key focus. Market forecasts anticipate headline CPI inflation to print at 3.2% y/y, up slightly from 2.9% in November, due to base effects in the fuel and food categories.