S CPI, PPI: Markets are looking for signs of US inflation peaking.

NEW YORK, May 10 (Reuters) – In the wake of a 50 basis point interest rate hike by an increasingly aggressive Federal Reserve, markets have swung wild ahead of this week’s U.S. economic data, they will be closely watched for signs of inflation I am talking about.

Price growth has soared to the highest level since the early 1980s due to the collision of a post-pandemic demand boom and a crippled global supply chain, and has stoked fears that attempts to The Fed’s aggressive efforts to control it could push the economy into recession. .

The Labor Department’s jobs report on Friday provided the first potential sign of a plateau, with monthly wage growth slowing to 0.3% from 0.5% and holding steady at 5.5% year-over-year.

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On Wednesday, analysts expect the consumer price index (CPI)

Energy and food prices were to blame, exacerbated by the fallout from the Russian-Ukrainian war.

“The Russian invasion of Ukraine has magnified the pace of inflationary pressures this year and there’s not much the Fed can do about it,” said David Carter, managing director of Wealthspire Advisors in New York.

Energy prices posted an 11% monthly jump in March, with gasoline rising a staggering 18.3%. Average prices at the pump hit a record high in March, according to motoring group AAA.

Food consumed at home increased 1.5% monthly, and grocery prices rose 10% year over year, the fastest annual growth in more than four decades.

Excluding food and energy prices, the so-called “core” CPI is expected to have risen 0.4% last month, but has cooled to 6.0% from 6.5% a year.

Inflation

Any sign of a slowdown would be welcomed by the markets.

People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS/Brendan McDermid

“If inflation meets expectations, it would be the first significant decline in the annualized rate of inflation since the depths of the COVID recession,” writes Matt Weller, global head of research at StoneX Financial.

Thursday’s producer price (PPI) data, which reflects the prices US businesses receive for their goods and services at the figurative factory gate, is expected to tell a similar story.

Consensus estimates forecast a sharp slowdown in headline PPI and a shallower slowdown when food and energy items are removed.

Recent survey data, particularly from the Institute for Supply Management’s (ISM) Purchasing Managers’ Indexes (PMI), reveals that the two main drivers of inflation—supply shortages and the ongoing worker drought—remained headwinds. significant in April.

On Tuesday, while 32% of participants in the National Federation of Independent Business (NFIB) Business Optimism survey rated inflation as their top concern, a record reading, fewer respondents reported increasing prices and increased wages.

Inflation concerns and prices paid

Until now, many companies have been able to pass on input costs to their customers. In fact, the S&P 500’s 12-month markup is rising.

As of May 6, that figure was 13.4%, higher than early May readings dating back at least 12 years, according to Refinitiv Datastream.

“Corporations have been able to pass on higher costs as demand remains strong,” Carter added. “However, if the Fed’s interest rate raises cold demand, companies won’t be able to pass on higher costs and margins will shrink.”

How will the markets react to the data?

The S&P 500 fell 0.3% on April 12, when the dreadful, albeit largely expected, March CPI report was released. Any number equal to or lower than Wednesday’s consensus would likely be welcomed by investors.

“Under the hood, there remain signs that inflation, tight labor markets and supply chain issues may have peaked,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “The market is in ‘test it’ mode, and those early signs are still far from adequate testing to calm markets.”

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Information from Stephen Culp; Edited by Alden Bentley and Andrea Ricci

Our standards: the Thomson Reuters Trust Principles.

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