EU and Canada inflation figures are in focus after hot UK CPI

It was a tough morning in Europe for both the Sterling and the Euro on Wednesday morning, as inflation in the UK shot through the roof, hitting 9% in April, its highest level since 1982. Traders eagerly eye the European CPI report later today.

UK inflation

During April, the consumer price index rose 2.5%, the most significant monthly increase since 1991, as the cap on household electricity and gas prices was adjusted to reflect the sharp rise in wholesale prices caused by the Russian invasion of Ukraine.

The core inflation rate, which removes volatile food and energy prices, has also been rising strongly, by 0.7%, as the recovery began to create bottlenecks, partly due to supply chain disruptions brought on by the pandemic while partly due to skills shortages caused by the absence of European union workers from the labour market.

Fed hawkish remarks

The positive data lifted the short-term mood, which showed retail sales in the US met forecasts for a substantial rise in April and industrial production beat expectations.

Data released on Wednesday showed that Japan's economy shrank less than expected in the first quarter.

There are also signs that Shanghai is moving closer to the end of its protracted lockdown. China's vice-premier recently made gentle remarks to tech executives in the latest sign that the pressure is lessening.

However, the good news was tempered by Jerome Powell, Federal Reserve Chair, who reminded the market that controlling inflation will require rate increases and possibly some pain in the future.

Powell announced Tuesday that the US central bank would hike interest rates when needed to curb sky-high inflation that he said threatened the economy's foundation. At its next two meetings in June and July of 2022, the Fed is expected to hike interest rates again by half-percentage points. It has already raised the interest rate by three-quarters of a percentage point in 2022.

Events of today

Bringing us to the data front, the EU will release inflation figures on Wednesday. The expectation is a steady increase in the CPI at 7.5% year-on-year. Similarly, the core consumer price index is forecast to remain unchanged from the previous year at 3.5%.

There is a great deal of interest in the US due to the number of building permits which is expected to decrease from 1.870 million in March to 1.812 million in April.

On Wednesday, the Canadian inflation data for April is one of the most important economic releases. Forecasts suggest that the core CPI will fall by 0.6% to 0.40% in April.