© Reuters. FILE PHOTO: 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
By Stephen Culp
NEW YORK (Reuters) – After an increasingly belligerent Federal Reserve rate hike of 50 basis points, markets turned violently ahead of this week’s U.S. economic data, which will be divided into two categories. Analyze carefully for signs that inflation is peaking.
Price growth has accelerated to its highest level since the early 1980s on the collision of a post-pandemic boom in demand and tightened global supply chains, and stoked fears that aggressive efforts Fed restraint could lead the economy into recession. .
Friday’s Labor Department jobs report offered the first potential sign of stabilization, with monthly wage growth falling from 0.5% to 0.3% and holding steady at 5. .5% over the same period last year.
On Wednesday, analysts expect the consumer price index (CPI) to show a sharp drop in monthly growth, falling to 0.2% in April from 1.2% in March – the the biggest monthly increase in more than 16 years – and the annual gain of 8.1%, 0.4 percentage points lower than the previous 8.5%, the hottest reading since December 1981.
Food and energy prices were the culprits, exacerbated by fallout from the Russo-Ukrainian war.
“Russia’s invasion of Ukraine has accelerated 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 rose 11% month-on-month in March, with gasoline up 18.3%. The average price at the pump hit a record high in March, according to motorists group AAA.
Food to eat at home rose 1.5% month-on-month 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 rise 0.4% last month, but cool to 6.0% from 6.5% year-on-year.
IMAGE: Inflation (https://graphics.reuters.com/USA-STOCKS/akvezykzypr/inflation.png)
Any signs of slowing down will be welcomed by the market.
Matt Weller, global head of research at StoneX Financial, writes: “If inflation prints as expected, it will be the first meaningful drop in the annual inflation rate since the depths of the recession. COVID recession”.
Thursday’s producer price (PPI) data, which reflects the prices US firms receive for their goods and services figuratively at the factory door, is expected to tell a similar story.
Consensus estimates forecast a sharp deceleration in headline PPI and a further deceleration excluding food and energy items.
Recent survey data, especially from the Institute of Supply Management’s (ISM) purchasing managers index (PMI) reveal two key drivers of inflation – supply scarcity and ongoing worker drought. out – remain significant obstacles in April.
On Tuesday, while 32% of survey respondents in the National Federation of Independent Business (NFIB)’s Business Optimism survey rated inflation as their top concern – a record high numbers – few respondents reported price increases and wage increases.
IMAGE: Fear of inflation and its cost (https://graphics.reuters.com/USA-STOCKS/zgpomlgmypd/nfibism.png)
Until now, many companies have been able to pass input costs on to their customers. In fact, 12-month forward rates are on the rise.
According to Refinitiv Datastream, as of May 6, that number was 13.4%, higher than early May results at least 12 years ago.
Carter added: “Companies can shift costs higher when demand is still strong. “However, if Fed rates drive lower demand, companies won’t be able to overcome higher costs and margins will fall.”
How will the market react to the data?
The S&P 500 index fell 0.3% on April 12, when the bad – albeit largely expected – March CPI report was released. Any number at or below consensus on Wednesday will likely be welcomed by investors.
Yung-Yu Ma, investment strategist at BMO Wealth Management, said: “Overall, there continue to be signs that inflation, a tightening labor market and supply chain woes are likely to worsen. has reached its climax.” “The market is in ‘prove it’ mode, and those early signs are still not enough evidence to calm the market.”
(This story refactored to add graphics)