US growth, inflation data in focus as markets assess impact of Middle East tensions

Key economic indicators, including US growth and global inflation data due later this week, are expected to provide further insight into the impact of recent Middle East tensions on the global economic outlook.

Tensions involving the United States, Israel and Iran that began in late February partially eased after a fragile ceasefire took effect on April 8, while upward pressure on oil prices linked to risks surrounding the Strait of Hormuz also moderated.

Higher energy prices, however, are still expected to fuel inflation globally through increased transportation, industrial production, electricity and heating costs.

Economic data for March and April indicated that higher energy prices during the conflict period had contributed to upward pressure on global prices.

The US core Personal Consumption Expenditures (PCE) index -- the Federal Reserve’s preferred inflation measure -- is scheduled for release Thursday.

Analysts expect the index to rise 0.3% month-on-month and 3.3% year-on-year in April.

The second estimate of US first-quarter gross domestic product (GDP) data is also due Thursday and is expected to provide a clearer picture of economic activity.

The US economy is expected to have expanded 2% in the first quarter.

Preliminary data from the US Commerce Department showed the economy grew at an annual rate of 2% in January-March, below the projected 2.2%.

Inflation indicators and growth figures are expected to play a significant role in shaping future central bank decisions.

The Federal Reserve is widely expected to pursue additional tightening measures at its December meeting.

Meanwhile, easing energy prices have generated optimism in the eurozone that inflationary pressures could soften.

The European Central Bank (ECB) is expected to continue tightening measures after energy-driven inflation accelerated across the region in March and April.

Markets broadly expect the ECB to raise interest rates at least twice before the end of the year.

Germany’s preliminary May inflation data is due Friday and is expected to provide further indications of whether energy prices continue affecting broader inflation trends.

Analysts expect Germany’s Consumer Price Index (CPI) to increase by 0.2% month-on-month and 3% year-on-year in May.

At the same time, weaker-than-expected data from China highlighted concerns that fragile global demand and geopolitical uncertainty continue weighing on growth prospects.

China’s industrial production rose 4.1% year-on-year in April, below estimates and reflecting a slowdown from the previous month, while retail sales increased only 0.2%, also missing expectations.

In Japan, annual inflation stood at 1.4% in April, lower than expected and down from March levels.

Attention has now shifted to Tokyo’s May CPI figures, which are viewed as a key indicator for Japan’s broader inflation outlook.

The index is expected to rise 1.6% year-on-year.

*Writing by Emir Yildirim in Istanbul