World Week Ahead: Gauging Oil's Impact on Inflation and Spending

Will there be further clues on U.S. rate hikes this week amid deflationary pressures around the world? In speeches they’re due to make, Atlanta, Philadelphia and St. Louis Fed presidents could offer some insights about whether the consensus view of a hike in the spring or early summer is wide of the mark. In the U.K., where sterling is selling off, fresh inflation data comes out Tuesday. If that falls below 1%, as is likely the case, Bank of England Governor Mark Carney will find himself having to write an open letter to Treasury Chief George Osborne to explain why it’s undershot the BOE’s 2% target by such a large margin. And there's likely to be more grim news from the troubled eurozone. All this comes amid further tumbles in the price of oil.

Here's the rundown of important data you need to know about in the week ahead.

MONDAY

INDIA: 7 a.m. EST (5:30 p.m, Delhi). December consumer price index. [In November, national combined CPI was +4.38% on-year.]

Rigorous monetary control from the Reserve Bank of India, which raised rates aggressively in the second half of 2013 into early 2014, has produced the desired effect, with inflation dropping from just over 11% in November 2013 to just over a third of that a year later. The question now, with RBI Governor Raghuram Rajan reluctant to loosen the reins, is whether the central bank has too tight a grip in the face of global deflationary forces. India is a big oil importer, so falling crude prices will drive down headline CPI readings in a positive way that would argue against easier money. But other forces, such as soft demand for its exports, are more problematic. If these numbers are sharply lower, it may be time for the RBI to cut rates.

U.S.: 12:40 p.m. EST. Federal Reserve Bank of Atlanta President Dennis Lockhart speech at Rotary Club of Atlanta.

After another strong payrolls number on Friday, but a surprising downturn in wages that suggests inflation pressures remain subdued, it will be interesting to learn where this generally middle-of-the-road member of the Federal Open Market Committee stands on the debate over how quickly the Fed needs to return to the rate-hiking business.

JAPAN: 6:50 p.m. EST (8:50 a.m., Tokyo). November balance of payments. [Current account surplus seen 125.5 billion yen vs. 833.4 billion yen in October.]

The ever-deteriorating Japanese external account is again expected to have cut into its fragile current account surplus. Despite a weaker yen, Japan is struggling to spur the export strength of years past, and so is seeing its historically significant current account surplus wax and wane. Eventually, it will disappear for good, which could be a serious problem for the rollover of the government's gargantuan public debt, as the surplus represents a pool of excess savings from which it finances itself.

TUESDAY

SWEDEN: 3:30 a.m. EST. (9:30 a.m., Stockholm). December consumer price index. [In November, the CPI was -0.1% on-month, -0.2% on-year.]

Price data out of places like Sweden aren't of great significance to the world economy per se, but they do tell a story of eurozone contagion that's worth noting. Noneurozone advanced economies such as Sweden, as well as newer members of the European Union in the east, have been unwittingly importing the deflationary effects of the eurozone's economic malaise, mostly via the weakening the euro. And this is showing up in their inflation statistics. It's another way to demonstrate the international dimension of this current moment of declining prices.

U.K.: 4:30 a.m. EST. (9:30 a.m., London) December inflation data. [Consumer price index in November was -0.3% on-month, +1% on-year; core CPI was -0.1% on-month, +1.2% on-year; Core producer price index in November was +0.5% on-month, +1.4% on-year.]

The negative price pressures in the U.K. aren't nearly as strong as they are in the eurozone, yet even here the effect of falling oil prices was enough to push both the headline and the core CPI into on-month declines in November. We will almost certainly see a similar effect in December, even if Britain still keeps its annual inflation rate in reasonably positive territory. Remember, though, it wasn't that long ago when the Bank of England was having to explain to parliament why annual inflation was exceeding 3%. This is by way of saying, again, that global deflation is a big deal.

CHINA: Time N/A. December trade balance. [Surplus expected $49.4 billion versus $54.47 billion in November.]

Last month's blowout surplus was an all-time record, so it's hardly surprising that economists see the trade gap narrowing in December. More important is driver behind the trend: waning imports. China's role as an absorber of the world's commodity supply is falling, and that's showing up as a trade surplus. It's less a statement about demand for its exports than one about China's own internal economy's slowdown.

WEDNESDAY

EUROZONE: 5 a.m. EST. (11 a.m., Brussels). November industrial production. [Expected unchanged on month vs. +0.1% in October; seen -0.7% on-year vs. +0.7% in October.]

Data from Germany and France ensure this number will come out looking pretty grim. Considering that the eurozone accounts for 20% of global GDP, this kind of slack in its industrial base has far-reaching implications--bad stuff, like exported deflation and weak demand.

U.S.: 7 a.m. EST. Mortgage Bankers Association weekly mortgage applications survey. [Prior week: market composite index +11.1%, purchase index +4.5%, refinance index +16%.]

Finally the slide in mortgage rates--perhaps coupled with the windfall from lower energy prices and an improved labor market--seems to be spurring borrowing activity, including even for home purchases. With the 10-year Treasury note's yield slipping below 2% last week, ensuring that mortgage rates will also fall, there's a chance that this rush of mortgage origination could continue.

U.S.: 8:30 a.m. EST. December retail sales. [Expected -0.1% on-month vs. +0.7% in November; ex-autos expected -0.1% vs. +0.5%.]

In general, the holiday season didn't produce quite as strong a gain from last year as models had predicted, though that's less of a reason for the expected decline in retail sales from November than the straightforward numerical pass-through from lower gasoline prices. Given the strength seen in November, there's still a general sense that consumer demand is reasonably solid, irrespective of how well retailers fared during the holiday shopping period.

U.S.: 9 a.m. EST. Federal Reserve Bank of Philadelphia President Charles Plosser speech on the economic outlook

The closer we get to the prospect-- not even the reality, but the prospect--of the first Fed rate hike in eight years, the more interesting the divisions between the central bank's doves and hawks will become. Last week we heard some pretty strongly worded arguments from doves Chicago Fed President Charles Even and the Boston Fed's Eric Rosengren for the Fed to bide its time on this "normalization" process. Now comes the response of the hawks, of which Mr. Plosser is one of the most hardline members.

U.S.: 9:15 a.m. EST. (2:15 p.m, London) U.K. Treasury Committee evidence session with Mark Carney on the Bank of England's Financial Stability Report.

Following the revelations in recently released minutes about the BOE's somnolent state as the financial crisis was brewing in 2008, Mr. Carney might be asked about how he, who arrived at the central bank some years after that, believes he is making the institution more alert to such risks.

U.S.: 2:15 p.m. EST. Federal Reserve Beige Book

How uniform, region-to-region, is the U.S. economic recovery? This compilation of reports from the 12 Federal Reserve districts should provide an answer.

SOUTH KOREA: Bank of Korea Monetary Policy Committee meeting & decision.

South Korea's slowing economy and external headwinds caused by a slowing Chinese economy and a weaker Japanese yen are sending signals that rates really should be lower. But at record lows on rates, the central bank's conservative minders feel uncomfortable moving further.

THURSDAY

INDONESIA: 1:30 a.m. EST. (1:30 p.m., Jakarta) Bank Indonesia Board of Governors meeting & decision

Having raised rates late last year at a difficult time for the economy--when locals were reeling from the potentially inflationary effect of an end to fuel subsidies--the central bank is likely to sit on the sidelines for a while.

SPAIN: 3 a.m. EST. (9 a.m., Madrid). December consumer price index. [In November, the CPI was -0.4% on-year and -0.5% on an EU-harmonized basis.]

Even in a monetary region beset with deflationary pressures, Spain's contractionary problems are especially deep-set. Hence the stark decline in the CPI.

POLAND: 8 a.m. EST. (2 p.m., Warsaw) National Bank of Poland interest rate decision.

Poland is suffering, like all countries caught between the stagnation in the eurozone and the crisis in Russia, from some heavy external economic challenges. But its central bank is very reluctant to cut rates further below the record-low 2% at which they now stand. Fear of the zero bound? Or just stubbornness?

U.S.: 8:30 a.m. EST.

The data keep confirming that the U.S. labor market is tight. But as we learned in last Friday's jobs report, wages refuse to rise.

Falling oil prices are playing a very heavy hand in the headline figure for PPI, but stripped of food and energy prices, the core PPI is more stable. That may not last, however, as lower energy prices could feed into the overall level of producer prices if they start affecting businesses' future pricing expectations more generally.

FRIDAY

U.S.: 8:30 a.m. EST. December consumer price index. [CPI expected -0.4% on-month vs. -0.3% in November; core CPI +0.1%, unchanged from November.]

It's to be expected that the headline CPI number will again be negative for the month. Such is the extent of the continued decline in gasoline and other consumer energy prices. The one to watch here is the core CPI, both because it's possible that falling energy prices could bleed into the core by way of an expectations effect and because they are not the only forces creating disinflationary pressure.

U.S.: 9:15 a.m. EST. December industrial production & capacity utilization. [Industrial production expected +0.1% on-month vs. +1.3% in November; capacity utilization expected 80% vs. 80.1% in November.]

Economists naturally expect some pullback from November's big jump, but the overall impression is that industrial activity is in a healthier state in the U.S. than in, say, the eurozone and China.

U.S.: 9:55 a.m. EST. Thomson Reuters / University of Michigan January Survey of Consumers. [Preliminary consumer sentiment index 94.5 vs. 93.6 end-December.]

Despite the volatility in markets at the beginning of the year, economists believe that an improving job market and falling gasoline prices are going to continue boosting consumer confidence.

U.S.: 1:10 p.m. EST. (12:10 p.m, Chicago.) Federal Reserve Bank of St. Louis President James Bullard speaks in Chicago.

Mr. Bullard is hard to put a label on. He has at times emerged as something of a dove, dissenting in 2013 on the grounds that the Fed should have been extending bond purchases for longer. But more recently, he has seen the pickup in the U.S. economy as reason to suggest that a rate hike could come sooner than markets were pricing in. Where does he now stand, given that others such as Chicago Fed President Charles Evans say that financial instability and very low inflation should keep the Fed on hold much longer than the spring or early-summer rate hike that the market consensus predicts?

Write to Michael Casey at michael.casey@wsj.com