Slowing inflation won't affect Fed's rate hike plans

After months of rising fuel prices, U.S. consumers finally got some relief last month as gasoline prices fell. However, core inflation remained relatively low.

The consumer price index is expected to have risen 0.2 percent in July from the previous month, which would be the lowest increase since early 2021. On the other hand, the core measure of inflation, which strips out food and energy, is expected to have risen 0.5 percent.

Despite the moderation in overall inflation, the broad measure of inflation remains elevated. The Federal Reserve is still expected to raise interest rates several times this year. After the strong July jobs report, the central bank's policymakers focus on aggressively hiking rates.

This week, various reports, including the consumer sentiment and producer price indexes, are also expected to be released. According to Anna Wong, an economist at Bloomberg, the strong July jobs report has increased the likelihood of another rate hike in September.

"The July jobs report settles it – we are not in a recession. More importantly, it also means the Fed will likely have to hike by another 75 basis points in September," said Wong.

Other reports expected to be released include the UK's first quarterly contraction in over a year and mixed signals from China's consumer prices. Although the Fed is likely to raise rates aggressively, other countries such as Peru, Thailand, and Mexico may also start seeing rate increases.

Asian market outlook

Several reports are expected to be released this week, including China's trade data for July. These are expected to show that exports continued to be a rare bright spot for the country's economy. Other reports are also expected to show that factory-cost inflation continued to moderate.

South Korea's jobless numbers are also expected to show continued tightness in the labor market, which could support faster inflation.

In Japan, producer prices data is also expected to show that companies are still struggling with the rising costs of raw materials.

Economists expect the central bank of Thailand to raise its key interest rate by a quarter point on Wednesday.

European market outlook

The Bank of England recently warned that the UK's economy is expected to contract for more than a year. According to the central bank, the country's gross domestic product is expected to drop by 0.2 percent in the second quarter. Although the economy may start growing in the third quarter, a prolonged slump could cause it to follow the 1990s pattern.

On the same day, industrial production data for the eurozone is also expected to be released. Although it is expected to show a slight increase, it could indicate a slowing down in the region's economic momentum.

Norway and Sweden's consumer prices data for July are also expected to be released on Wednesday. If they show signs of accelerating inflation, this could cause the ECB to start to raise interest rates more aggressively.

In eastern Europe, consumer prices data for Hungary are expected to show an increase of 13 percent in July.

In Russia, consumer prices are expected to have fallen for the third month in July. This data will be closely watched to see if the central bank's rate cuts have started to affect the economy.