The week ahead brings a relatively light economic calendar, as is typically the case following the Non-Farm Payrolls report, and it begins with bank holidays in the United States and Canada.

On Tuesday, Japan is scheduled to release its quarterly GDP figure, while Australia will publish Westpac consumer sentiment data.

Wednesday brings the U.S. ADP weekly employment change, with two releases published simultaneously because the source skipped last week's data release. On Thursday, the European Central Bank will announce its monetary policy decision for the Eurozone, while the United States will release PPI m/m, unemployment claims, and existing home sales figures.

Friday is the main event of the week, with the highly anticipated U.S. inflation data taking center stage, accompanied by the preliminary University of Michigan consumer sentiment reading and preliminary UoM inflation expectations. The Federal Reserve will also publish its monetary policy report, which is released twice a year.

Australia: Sentiment Improves but Consumers Remain Downbeat

Australian consumer sentiment rose 6.0% in August to 88.9. Despite the improvement, consumers remain pessimistic overall, with uncertainty surrounding the conflict in the Middle East continuing to weigh on sentiment. Sentiment index readings below 100 indicate that pessimists outnumber optimists, so the August figure still points to a downbeat mood among households.

Rising inflation has also fueled concerns that further rate hikes could be on the table, which would place additional pressure on households. At the same time, the correction in the housing market has intensified, adding another headwind for consumers.

ECB: 25 bps Hike Expected

At this week's meeting, the ECB is widely expected to raise its deposit rate by 25 basis points to 2.50%. The move would continue the ECB's most aggressive tightening cycle since the euro's introduction, as policymakers grapple with inflation that remains well above the bank's 2% target. The main arguments supporting the move are resilient Q3 activity, still-elevated headline inflation, and contained wage growth.

While softer core and services inflation point to easing underlying price pressures, higher energy prices and the more hawkish tone of the July minutes are likely to keep policymakers cautious. Analysts at Wells Fargo noted that fuel prices are close to their 2022 peaks, while low gas storage levels leave the Eurozone exposed to further energy shocks.

The ECB is considered unlikely to react aggressively to an energy-only shock given the risks to growth. However, a broader rise in food prices could prove more concerning if it pushes up inflation expectations. Beyond September, the policy path will depend on how persistent energy and food price pressures prove to be, making the accompanying communication on future moves as closely watched as the decision itself.

U.S.: Inflation Data Takes Center Stage

The consensus forecast for core CPI m/m is 0.2%, matching the prior 0.2%, while core CPI y/y is expected at 2.4% compared to 2.5% previously. Headline CPI m/m is forecast at 0.4% versus 0.1% last month, while CPI y/y is expected at 3.4%, unchanged from the prior reading.

Following a stronger-than-expected jobs report, market attention now turns to inflation. With expectations for a September rate hike rising, this week's CPI report will be key. The Fed has repeatedly emphasized that it views inflation data as central to determining whether further tightening is needed, which is why CPI prints have become recurring focal points for markets in recent months.

Core services inflation is expected to rise by around 0.2%, with firmer travel and lodging costs offsetting softer medical care and housing inflation. Overall, the report is expected to show that headline inflation is still being influenced by the Middle East conflict's impact on oil prices, while core inflation remains relatively contained. Beyond Friday's data, the Fed's monetary policy report will offer a further read on how officials assess the economic outlook heading into the September meeting.