Markets look for signs of higher US inflation

Markets look for signs of higher US inflation

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

In the wake of the 50-basis-point interest rate climb by an inexorably hawkish Federal Reserve, markets have revolved ridiculously in front of the current week’s U.S. economic data, which will be firmly parsed for signs that inflation is peaking. Cost development has taken off to the highest level since the early 1980s due to the collision of a post-pandemic demand boom and a gummed up global supply chain, and has stoked fears that the Fed’s aggressive endeavors to get control it over could lead the economy into downturn.

On Wednesday, analysts expect the consumer price index (CPI) to show a sharp pullback in monthly growth, cooling to 0.2% in April from 1.2% in March — the biggest monthly jump in more than 16 years — and an annual increase of 8.1%, 0.4 percentage point lower than the prior 8.5%, which was the hottest reading since December 1981.

Energy and food prices were the culprit, exacerbated by fallout from the Russia-Ukraine war.

“Russia’s invasion of Ukraine has magnified the pace of inflationary pressures this year and the Fed can’t do much about that,” said David Carter, managing director at Wealthspire Advisors in New York.

Energy prices posted an 11% monthly jump in March, with gasoline surging by a jaw-dropping 18.3%. Average prices at the pump hit a record high in March, according to motorist group AAA.

Food eaten at home rose 1.5% on a monthly basis, and grocery prices rose by 10% year-on-year, the fastest annual growth in more than four decades.

Stripping out food and energy prices, so-called “core” CPI is expected to have edged up by 0.4% last month, but cooling to 6.0% from 6.5% on an annual basis.

GRAPHIC: Inflation (https://graphics.reuters.com/USA-STOCKS/akvezykzypr/inflation.png) Any sign of deceleration would be welcomed by markets.

“If inflation prints at expectations, it would be the first meaningful decline in the annualized inflation rate since the depths of the COVID recession,” writes Matt Weller, global head of research at StoneX Financial. Thursday’s producer prices (PPI) data, which reflects the prices U.S. companies receive for their goods and services at the figurative factory door, are predicted to tell a similar tale.

Consensus estimates forecast a sharp deceleration in headline PPI, and a shallower slowdown when stripped of food and energy items. Recent survey data, particularly from the Institute for Supply Management’s (ISM) purchasing managers’ indexes (PMI) reveal that two main drivers of inflation — supply scarcity and the ongoing worker drought — remained significant headwinds in April.

On Tuesday, while 32% of survey participants in the National Federation of Independent Business’ (NFIB) Business Optimism survey rated inflation their top concern — a record-high reading — fewer respondents reported raising prices and hiking wages.

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