Illustration: Liu Rui/Global Times

The US Labor Department is scheduled to release its consumer price index (CPI) for January on Tuesday. Although the CPI rose by 6.5 percent year-on-year in December 2022, the sixth consecutive month of cooling inflation, now an increasing number of analysts forecast that the optimistic expectation of continued decline in US inflation is facing challenges.

Consensus indicates headline US inflation will push 0.5 percent higher in January, spurred on by higher energy prices, unwinding months of deceleration. Excluding food and energy prices, so-called core inflation is forecast to rise 0.4 percent for the month, The Australian Financial Review reported on Monday.

Analysts observed that US inflation likely rose in January, in part due to higher prices of home, second-hand cars and energy. In addition, in a wage-price spiral, the rapid wage growth in the US labor market also causes the costs of businesses to increase, pushing up inflation expectation in the US.

This week's US consumer price and retail sales data is likely to determine the near-term level of the asset price. If there is a U-shaped turn in US inflation, it may force the US Federal Reserve (Fed) in the contradicted position of taming inflation and preventing recession again. To bring down the inflation, the Fed may be forced to keep interest rates high.

This week's inflation data may be a trigger for the decline in US stocks. The rise in US stocks this year is due to the market's belief that the Fed is tending to be dovish. If this assumption does not exist, that is, after this week's inflation data, the Fed will be aggressive in raising interest rates, US stocks may fall.

Markets have already sharply raised the profile for future tightening by the Fed, with rates now seen peaking up around 5.15 percent as a result of Fed's aggressive interest rate hikes. Asian shares slid and the dollar rose on Monday as investors hunkered down for US inflation data that could jolt the outlook for interest rates globally, Reuters reported.

Rising US interest rates could derail the US economy's struggling recovery and exacerbate the risk of a recession. US businesses reported a further decline in activity in January, according to The Wall Street Journal. On average, business and academic economists polled by The Wall Street Journal put the probability of a recession in the next 12 months at 61 percent. The Fed initially hoped to raise interest rates to push inflation down at the cost of a slowdown in economic growth, and the potential risk of the Fed being forced to continue raising interest rates amid high recession risks is worrisome.

The great uncertainty in the US economy and its policy is causing great impacts on world economy. The performance of other developed economies in 2023 remains to be seen, and the export of inflation in the US may worsen inflation in Europe and the world, thereby exacerbating their economic difficulties.

As status high energy prices, declining household purchasing power, weakening external environment and tightening financing conditions continue into 2023, the European economic outlook is facing great uncertainty this year. Japan and South Korea, the developed economies in East Asia, have been impacted by the interest rate hike of the US dollar, and their economic development is also subject to great uncertainty.

The global economy is in a critical stage of recovery and still faces great uncertainties. Therefore, countries should strengthen coordination and cooperation to jointly deal with potential challenges, so as to eliminate risks to the greatest extent and ensure economic recovery. In particular, when the US implements new economic and financial policies, it should not pass on the crisis, but take full account of its spillover impact and adopt a more responsible approach to other global economies.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn