This week, investors will be faced with fresh data on the state of inflation, as the Federal Reserve hastens to bring down fast-rising prices. Quarterly earnings season will also continue, with a bevy of closely watched stock index components reporting results.
The Bureau of Labor Statistics' April Consumer Price Index (CPI), due out Wednesday, will be one of the most closely watched economic reports this week. The headline index is expected to decelerate on both a month-over-month and year-over-year basis, offering a tentative sign that the rate of price increases may have peaked in March.
Specifically, consensus economists are looking for the broadest measure of CPI to increase by 8.1% in April, coming down from March's 8.5% advance. That rise marked the fastest rate since 1981. On a month-over-month basis, the headline CPI is expected to edge up by just 0.2%, also coming down sharply from March's 1.2% rise.
Excluding volatile food and energy prices, the core measure of CPI is anticipated to decelerate to a 6.0% annual increase. That would be the slowest rate since December, following March's 6.5% year-over-year rise in core CPI.
A moderation in energy prices is likely to contribute markedly to the deceleration in headline CPI. Prices for crude oil, gas, and other energy commodities soared in late February and March following Russia's initial invasion of Ukraine. While energy and other supply chain disruptions related to these geopolitical concerns lingered, the rate of price appreciation from these events has temporarily pared back.
"After boosting headline in March, energy prices are set to be a sizable drag reflecting a decline in retail gasoline prices coupled with unfavorable seasonal factors," Bank of America global economist Ethan Harris wrote in a note Friday. "Meanwhile, food prices should remain hot. If our forecast proves correct, yoy [year-over-year] headline inflation would drop to 7.9% from 8.5%, confirming March as the peak for yoy inflation."
Within core inflation, however, some heavily weighted categories are still expected to come in hot, keeping inflation elevated, if off peak rates. Rents in particular are expected to keep climbing, reflecting heightened demand as rising home prices and mortgage rates keep many home-buyers on the sidelines.
“Food, energy, and shelter are the categories worth watching, but shelter is of particular concern," Greg McBride, chief financial analyst at BankRate, said in an email Friday. "Shelter accounts for 40% of the CPI – as it does for many household budgets – and with double-digit increases in rents kicking in, this puts the household budget in a vise even if food and energy costs level out.”
Most importantly, even if inflation rates come down from records, prices would still be climbing at clips well above pre-pandemic trends and the Federal Reserve's targets for the U.S. economy. The central bank last week unleashed its first 50 basis-point interest rate hike since 2000 and announced the start of quantitative tightening, in some early moves to try and address the demand-side factors keeping prices elevated across the economy.
The latest inflation reports will show how far the Fed still has to go to get inflation rates back down near their 2% targets.
The Fed has also telegraphed its main priority is now to bring down inflation, even if it means sacrificing some economic growth. Investors are watching closely to see whether the Fed can balance its objective of addressing inflation while still avoiding triggering a significant economic downturn.
"I think right now investors have to kind of weigh the two outcomes we are facing, which is basically a soft landing, where the Fed can get inflation under control without driving the economy into a recession, and a hard landing, where the Fed has to over-tighten and push growth into negative territory," Robert Dent, Nomura vice president and U.S. economist, told Yahoo Finance Live on Friday.
"I also think part of what's going on is, markets may have focused a little too much on Chair Powell's comments on Wednesday pushing back against 75 basis point hikes and missed the broader point of the meeting, which was that the Fed is still very much in a mode that [they will do] whatever it takes to get inflation under control, I think they are prepared to hike rates to a very constrictive level," he added.
This week, earnings season will roll on with another busy schedule of reports slated for release.
Disney (DIS), a member of the Dow Jones Industrial Average, will be one of the companies slated to report results. Its diversified businesses, between its theme parks, movie studios and streaming services, have situated the company as a partial member of both the stay-at-home and reopening trades.
But this earnings season, Disney's streaming business will be the major focal point after Netflix's disappointing report last month. In that print, Netflix unexpectedly posted its first decline in subscriber growth for the first time in a decade, and said it expected to lose another 2 million paying users in the current quarter.
Netflix attributed its subscriber attrition to a combination of competition, saturation in its major North American market, password-sharing and, to a lesser extent, its exit from Russia following the country's invasion of Ukraine. While Disney+ had not officially launched in Russia to begin with, Disney did announce in March that it would pause all business in the country as well, including the release of new movies.
Consensus analysts are also looking for a slowdown subscribers for Disney's flagship Disney+ streaming service. According to Bloomberg estimates, Wall Street expects Disney+ subscribers will grow by about 4.2 million for the company's fiscal second quarter. This would bring total subscribers to about 134.1 million. Subscribers during the same period last year had risen by 8.7 million, and in the previous quarter, rose by 11.7 million.
But while Disney+ will likely see a slowdown in growth, Disney's parks, experiences and consumer products business division is expected to ramp further. Analysts are looking for the unit to bring in $1.61 billion in operating profit on revenue of $6.1 billion. In the same quarter last year, the theme parks unit had posted an operating loss as virus-related restrictions weighed on consumer mobility.
Disney is expected to report adjusted earnings per share of $1.18 on revenue of $20.12 billion for its fiscal second quarter. Disney shares have fallen by nearly 30% for the year-to-date, underperforming against the S&P 500's more than 13% drop during that period.
Monday: Wholesale inventories, month-over-month, March final (2.3% expected, 2.3% in prior print); Wholesale trade sales, month-over-month, March (1.8% expected, 1.7% in prior print)
Tuesday: NFIB Small Business Optimism index, April (92.9 expected, 93.2 in prior print)
Wednesday: MBA mortgage applications, week ended May 6 (2.5% during prior week), Consumer Price Index, month-over-month, April (0.2% expected, 1.2% in March); Consumer Price Index excluding food and energy, month-over-month, April (0.4% expected, 0.3% in March); Consumer Price Index, year-over-year (8.1% expected, 8.5% in March); Consumer Price Index excluding food and energy, year-over-year, April (6.0% expected, 6.5% in March); Monthly Budget Statement, April ($220.0 billion expected,, -$192.7 billion in March)
Thursday: Producer Price Index, month-over-month, April (0.5% expected, 1.4% in March); Producer Price Index excluding food and energy, month-over-month, April (0.6% expected, 1.0% in March); Producer Price Index excluding food and energy, year-over-year, April (8.9% expected, 9.2% in March); Initial jobless claims, week ended May 7 (190,000 expected, 200,000 during prior week); Continuing claims, week ended April 30 (1.384. million during prior week)
Friday: Import Price Index, month-over-month, April (0.7% expected, 2.6% in March); Import Price Index, year-over-year, April (1.2% expected, 1.1% in March); Export Price Index, month-over-month, April (0.7% expected, 4.5% in March); Export Price Index, year-over-year, April (18.8% in March); University of Michigan sentiment, May preliminary (64.0 expected, 65.2 in April)
No notable reports scheduled for release
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck