CPI, PPI: markets watch for signs of a spike in inflation in the United States

NEW YORK, May 10 (Reuters) – In the wake of an increasingly hawkish Federal Reserve hike in interest rates by 50 basis points, markets turned sharply ahead of this week’s U.S. economic data, which will be closely monitored for signs of inflation. I speak.

Price growth soared to its highest level since the early 1980s due to the collision of a post-pandemic demand boom and a gummed up global supply chain, and fueled fears that attempts the Fed’s aggressive attempts to contain it will only drive the economy into recession.

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

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

Energy and food prices are the culprits, exacerbated by the fallout from the Russian-Ukrainian war.

“Russia’s invasion of Ukraine has amplified 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 a monthly jump of 11% in March, with gasoline jumping 18.3%. Average prices at the pump hit a record high in March, according to motoring group AAA.

Food consumed at home rose 1.5% on a monthly basis and food 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 slightly by 0.4% last month, but come back down to 6.0% from 6.5% on an annual basis.

Inflation

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

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

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

Thursday’s producer price (PPI) data, which reflects the prices U.S. businesses receive for their goods and services figuratively leaving the factory, should tell a similar story.

Consensus estimates call for a sharp deceleration in the overall PPI and a less pronounced slowdown as food and energy products are stripped.

Recent survey data, particularly the Institute for Supply Management (ISM) Purchasing Managers Indices (PMIs), reveal that two main drivers of inflation – scarcity of supply and continued shortage of workers – remained significant headwinds in April.

On Tuesday, while 32% of participants in the National Federation of Independent Business (NFIB) business optimism survey ranked inflation as their top concern – a record number – fewer respondents said they were raising prices and wages.

Inflation concerns and prices paid

So far, many companies have been able to pass on input costs to their customers. In fact, the S&P 500 12-month forward profit margin is increasing.

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

“Companies have been able to pass on higher costs as demand remains strong,” Carter added. “However, if the Fed’s interest rate increases demand, companies will be unable to pass on higher costs and margins will shrink.”

How will the markets react to the data?

The S&P 500 slid 0.3% on April 12, when the dreadful – although widely anticipated – March CPI report was released. Any number at or below the consensus on Wednesday would likely be welcomed by investors.

“Under the hood, there are still signs that inflation, labor market tightness and supply chain issues may all have peaked,” said Yung-Yu Ma, strategist in Chief Investment Officer at BMO Wealth Management. “The market is in ‘prove it’ mode, and these early signs are still far from sufficient proof to calm the markets.”

(This story refiles to add graphics)

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Reporting by Stephen Culp; Editing by Alden Bentley and Andrea Ricci

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