Inflation is back in Wall Street’s crosshairs as the U.S. economy surges again


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The regular rundown on wholesale inflation is usually a big yawn on Wall Street. But not right now.

One of the obstacles looming for the U.S. as it recovers from the coronavirus is a shortage of key businesses supplies. That’s making it harder for companies to produce enough goods and services to keep up with rising demand.

The result: Prices are going up and stirring long-dormant worries about inflation.

Read: Surging U.S. manufacturers grow faster as key ISM index hits 38-year high

If prices rise fast enough, the thinking goes, the Federal Reserve could be forced to raise interest rates far earlier than planned and make it more costly for consumers and businesses to borrow. Higher rates could also kill off a Wall Street DJIA, +0.52% stock boom.

It might have sounded farfetched last winter, but not anymore. Every key measure of inflation is on the rise again and the uptrend is expected last through the summer. Speedier U.S. economic growth is expected to put even more upward pressure on prices.

Read: U.S. gains 916,000 new jobs in March and signals strengthening economy

Also: Is the U.S. unemployment rate really 6%? Not even close

The government’s report on wholesale inflation, called the producer price index, is always the first price barometer to come out each month. The PPI data, due next Friday, is forecast to climb 0.5% in March in what would be the third strong increase in a row.

Such an increase would push the rate of wholesale inflation in the past 12 months up to 3.8% —a 10-year high.

See: MarketWatch Economic Calendar

The wholesale inflation report has often been ignored by Wall Street because it doesn’t show a strong relationship with with the prices Americans pay for a variety of goods and services

Yet a pair of broader gauges the Fed and investors use as their sounding board, the consumer price index and PCE index, are also showing a steady increase in the cost of living. So the whole report is sure to draw a lot of scrutiny.

“Markets will pay additional attention to PPI inflation, looking for signs of building price pressure, “Citibank economists wrote in a note to clients.

Fed leaders contend the burst of oncoming inflation will peter out as the global economy returns to normal and critical business supplies become more freely available again.

See: A visual look at how an unfair pandemic has reshaped work and home

They may be right, but they could find themselves in an uncomfortable spot if prices keep rising well above the Fed’s 2% target.

“Expect inflation to get above the Fed’s average long run target of 2% soon and stay there for an extended period,” said Joel Naroff of Naroff Economic Advisors.