GLOBAL ECONOMY WEEKAHEAD-Oil price risks put inflation back in focus
* Iraq violence oil price spikes weigh on policy
* Euro zone PMIs to give flavour of euro zone recovery
* U.S. 1st-qtr GDP reading to give clues to Fed's next move
* Britain's 1st-qtr data more hopeful; Japan CPI in focus
By Robin Emmott
BRUSSELS, June 22 (Reuters) - Iraq will be foremost in investors' minds in the coming week as oil price risk has returned to markets, complicating the task for central banks whose policies are beginning to diverge for the first time since the global financial crisis.
Oil prices neared nine-month highs late last week, touching $115 a barrel, and the rapid advance of militants in Iraq, the second-largest OPEC producer, is destabilising oil markets.
That has implications for inflation in the United States and Europe, as well as Asia's export-oriented economies that are large net importers of oil.
Investors will be watching a range of data, from German and Japanese consumer prices to first-quarter U.S. GDP, to see how the Federal Reserve, the European Central Bank (ECB), the Bank of England and the Bank of Japan respond.
"Just as oil prices had become increasingly stable, we reckon the risk for an oil price spike is now the highest since the global crisis," said Christian Keller, an economist at Barclays. "We think a further price spike of 10 to 15 percent from here is not implausible," he said.
Until now, falling energy prices have partly been responsible for the euro zone's low level of consumer price inflation, which the ECB considers to be in its "danger zone".
A rise in the inflation rate would be welcome but economists and the International Monetary Fund believe the ECB still needs to consider U.S.-style money printing to support the bloc.
Euro zone sentiment readings and preliminary purchasing managers' surveys for June on Monday may give the ECB a sense of how much more help the euro zone economy needs. The recovery from a two-year recession lost pace in April and manufacturing has lost momentum.
Germany's inflation reading on Friday will give a taste of the euro zone-wide reading that is due the following week.
"Although higher near-term inflation may reduce the likelihood of more ECB easing in the short term, lower economic growth and core inflation down the line would, in fact, support the case for further policy accommodation at a later date," Luigi Speranza and Gizem Kara of BNP Paribas said in a note.
EU leaders will discuss economic policy at a summit on Thursday and Friday in Brussels.
SOBERING WEEK TO COME?
In the United States, investors will be looking to the third and final reading of U.S. first-quarter GDP figures on Wednesday to see if there is a revision of the 1 percent contraction already printed and which followed disappointing March trade figures.
Federal Reserve chief Janet Yellen cited reasons for optimism about the world's biggest economy last week, including household spending and a better jobs market. Economists generally agree that the effects of unusually bad winter weather will fade later this year.
Core U.S. consumer prices have risen 2 percent over the last year. If the inflation rate went much higher, it would put pressure on the Fed to consider moving to raise rates.
For now though, the impact of events in Iraq and an oil-driven increase in inflation seem to be less pressing for the Fed.
Yellen said interest rates could stay "well below longer-run normal values at the end of 2016".
Some of America's largest money managers interpreted her comments as signalling that rates will remain low throughout 2016.
A speech by Federal Reserve Bank of Philadelphia President Charles Plosser in New York on Tuesday will also be in focus.
"Following last week's Fed meeting and amid renewed concern over inflation, U.S. news flow might actually be rather sobering," said Rob Carnell, ING's chief international economist.
There is also talk of additional stimulus in Japan in the coming months. Japan's annual exports declined for the first time in 15 months in May, hurting the world's third-biggest economy just as consumption is being crimped by an increase in national sales tax.
This week, much of the focus will be on core nationwide inflation for May and Toyko's core reading for June as well as the government's growth strategy, which is under discussion and may be formally decided by Friday.
The Bank of Japan's monetary stimulus helped weaken the yen by a fifth last year. But the currency has stabilised this year versus the dollar, limiting gains in the value of exports.
Among other big industrialised powers, first-quarter British GDP on Friday will show a different picture.
Economists polled by Reuters expect growth to be revised up to 0.8 percent due to a better showing from construction.
That would bring annual growth to 3.1 percent, the strongest since before the start of the global financial crisis.
The Bank of England could become the first major central bank to raise interest rates since the crisis.
"Markets now more or less fully price in a 25 basis point rate hike by year-end, consistent with our view," Michael Saunders and Ann O'Kelly at Citi said in a note. "We expect growth will remain strong even while rates rise." (Editing by Susan Fenton)