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BRUSSELS (Reuters) - U.S. President Donald Trump's address to Congress may make the most headlines, but inflation readings of 2 percent could prove more significant economic events next week - a call to action perhaps in America and a important milestone in Europe.
The U.S. consumer price index (CPI), published mid-Feb, has already shown prices rising at their fastest monthly pace in nearly four years in January and a year-on-year rate of 2.5 percent.
However, the Fed has often emphasized the inflation measure for personal consumption expenditures (PCE) because of its wider range of goods and services. And that too is now seen climbing to 2 percent on its release on Wednesday.
Rob Carnell, chief international economist at ING, sees the release as pivotal, nudging more Federal Open Market Committee members, who next meet on March 14-15, to favor action as the excuse of low inflation disappears.
"Their target inflation measure is hitting their longer-run objective and at that point, everybody should be waking up and saying: You know what, March is a live month," he said.
In a Reuters poll of primary dealers earlier this month, none expected the next rate hike to occur before the second quarter. [FED/R] According to minutes released on Wednesday, many Federal Reserve policymakers said it may be appropriate to raise interest rates again "fairly soon", taken by markets as implying a reduced chance of a March hike.
"The only thing they can point to is all the uncertainty around Trump. Well, the only uncertainty is how much stimulus he's going to deliver," said Carnell.
Trump will address Congress in a speech on Tuesday expected to include some details of his infrastructure spending and tax plans, which could include a new border tax on imports.
By contrast, the European Central Bank, whose Governing Council next meets on March 9, will more easily brush aside an inflation rate of 2.0 percent, the market consensus for February, with a core rate, excluding more volatile energy and unprocessed food components, seen stubbornly below 1 percent.
Headline inflation in any case is unlikely to spiral higher.
Fabio Fois, European economist at Barclays, sees a "twin-peak" profile, with highs in April and September, boosted by rising airline, holiday, energy and food prices, before receding toward the core level of around 1.2-1.3 percent by the end of 2018.
If inflation fails to spur central banks, what of its effect on consumers, the main drivers of growth in Europe and the United States?
U.S. consumer sentiment is seen easing further from December's 15-year high, with stock markets more subdued after initial euphoria following Trump's election victory. The February figure due on Tuesday will give a first consumer assessment of Trump's turbulent first month in office and his possible impact on the economy.
For the time being, rising inflation is not biting.
"Last year we got a bit of a boost from low oil prices. This year, it's more the nominal wage side, partly offset by higher oil prices," said Harm Bandholz, chief U.S. economist at UniCredit.
In the euro zone's periphery, private consumption picked up with lower energy prices last year, with a reverse effect possible 2017. Among core countries, spending should stay healthy due to a strong labor market, wage increases and low interest rates, all factors that should be in place for the next year or two.
So far, consumers have shrugged off political risk factors, such as the Dutch who vote on March 15 and the British after the Brexit vote. However, British inflation could start to be felt with the rate set to approach 3 percent by the end of the year due to the fall in sterling.
Christian Schulz of Citi, behind a paper entitled "UK consumption - the only way is down", sees food and energy inflation weakening consumer sentiment and driving up currently low savings rate.
Consumer sentiment data for February are due out on Tuesday.
Retail sales were strong from June to November, but the boom came to an abrupt end in December and January, with UK retailers now raising prices at their fastest pace in almost six years.
Fuel price rises are felt immediately, but the full impact of the lower pound may take some time to feed through to inflation because of hedging, such as by airlines, and companies having stock from before.
"We see it adding up to 2 percentage points per year," Schulz said, adding Citi views UK inflation as the biggest risk to consumption growth this year and next.
Reporting By Philip Blenkinsop