By Stephen Culp

NEW YORK (Reuters] – Markets are wildly anticipating this week’s U.S. economic data. These will be carefully scrutinized for any signs of inflation peaking in light of the Federal Reserve’s recent 50-basis-point increase in interest rates.

The combination of post-pandemic global demand boom and a clogged up supply chain has caused price growth to soar to new heights. This has raised concerns that aggressive Fed efforts to control it could cause the economy to enter recession.

Friday’s Labor Department report provided the first possible sign that there is a plateau. Wage growth fell to 0.3% from 0.5%, and held steady at 5.5% annually.

On Wednesday, the CPI (consumer price index) is expected to experience a dramatic pullback in monthly GDP growth. The drop will occur at 0.2% in April, from 1.2% March. This was the greatest monthly increase in over 16 years.

The culprits were energy and food prices, which was made worse by the fallout of the Russia-Ukraine conflict.

“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.

In March, energy prices saw a 11% jump and gasoline prices soared by an astonishing 18.3%. The average pump price hit an all-time high of $11 per month in March according to AAA motorists group.

The monthly price of food at home increased 1.5%, while grocery prices rose 10%, which is the highest annual increase in over 40 years.

If you exclude food and energy prices the core CPI will have increased 0.4%, but is now at 6.0%, compared to 6.5% annually.

The markets would appreciate any signs of slowing.

Matt Weller is global head of research for StoneX Financial. He writes that if inflation rises to expectations it will be the first significant decline in annualized inflation rates since the COVID recession.

Thursday’s producer price (PPI) data will tell an identical story. It reflects what U.S. companies pay for their products and services at the literal factory door.

Consensus forecasts a deceleration of headline PPI and a slower slowdown when food and energy are removed.

Recent data, especially from ISM (Institute for Supply Management) purchasing manager’s indexes PMI (Purchasing Managers’ Indexes) (ISM), show that supply shortage and ongoing worker drought are the two major drivers of inflation. These headwinds remained in April.

While 32% of respondents to the National Federation of Independent Business (NFIB), Business Optimism Survey rated inflation as their number one concern, this was a record high reading. However, fewer people reported increasing wages and raising prices.

Many companies have managed to transfer input costs to customers so far. The 12-month forward profit margin actually increases.

Refinitiv datastream showed that this figure stood at 13.4% as of May 6. This was higher than earlier readings for May going back at most 12 years.

Carter stated that “Corporations have been capable of passing on higher costs while demand remains strong.” “However, if the Fed’s interest rate increases cool demand, companies will be unable to pass along higher costs and margins will shrink.”

Which market will react to these data?

The S&P 500 slipped 0.3% on April 12, when March’s dire — although largely expected — CPI report was released. Investors would be happy to see any number that is below the consensus figure on Wednesday.

“Underthe hood there remain signs that inflation is continuing to rise, labor market tightness and supply chain woes might all have peaked,” said Yung Yu Ma chief investment strategist at BMO Wealth Management. “The market is still in proof mode. Those early signs may not be enough to soothe the markets.”