updated 8/12/2007 4:11:35 PM ET 2007-08-12T20:11:35

Amid the wildest stock market in years, the Federal Reserve has maintained that inflation is its biggest worry. Wall Street will try decide if that’s a legitimate stance when this week’s data on rising prices comes in.

Major Market Indices

Market stability has been crumbling under the fear that credit is drying up, due to losses in subprime lending and excessive collateralized debt in the private equity sphere. While the Fed Reserve recognized those concerns last week after it decided to hold interest rates steady, it reiterated that the economy should keep growing moderately and that the risk of inflation is the predominant concern.

After that statement, the stock markets seesawed. They did manage to finish higher for the week thanks to a Fed cash infusion into the banking system, with the Dow Jones industrial average rising 0.44 percent, the Standard & Poor’s 500 up 1.44 percent and the Nasdaq composite index gaining up 1.34 percent.

The failure to lean toward a rate cut puzzled some investors. Lowering rates would spur inflation more than the cash injections will, but many on Wall Street believe that’s a risk worth taking to boost liquidity and prevent a credit crunch.

Right now, inflation measures have been registering at the upper end of the Fed’s comfort zone, but the Fed has said it wants more evidence that price pressures are easing. That evidence could come in the form of the Labor Department’s Producer Price Index on Tuesday and Consumer Price Index on Wednesday.

The July PPI is expected to have risen 0.1 percent after a June decline of 0.2 percent, according to economists surveyed Friday by Thomson Financial. The core PPI, which takes out often-volatile food and energy prices, is expected to have risen 0.2 percent, following June’s 0.3 percent increase.

The July CPI is anticipated to have risen 0.1 percent, after June’s 0.2 percent jump. The core CPI is expected to have increased 0.2 percent last month, the same as in June.

Later, on Thursday, Wall Street will hear about the state of the housing market — the main culprit behind the financial markets’ woes. Housing starts for July are expected to rise by a slightly smaller amount than in June, and building permits are expected to increase by about the same amount.

On Monday, the Commerce Department reports on July retail sales and June business inventories. Retail sales are expected to have ticked up 0.2 percent last month, after a 0.9 percent decline in June, and inventories are anticipated to have increased 0.3 percent, compared to May’s 0.5 percent rise.

On Tuesday, the Commerce Department reports on the nation’s trade balance. Economists predict that the trade deficit widened to $60.7 billion in June from $60.0 billion in May.

On Wednesday, the Federal Reserve releases data on July industrial production and capacity utilization. Wall Street forecasts a 0.3 percent rise in industrial production, compared to June’s 0.5 percent increase, and capacity utilization to hold virtually steady at 81.8 percent.

The University of Michigan on Friday releases its preliminary reading on August consumer sentiment. The report is expected to show slightly weaker sentiment this month compared to July.

On Monday, Wall Street will be interested to see how the Blackstone Group LP did in its first quarter as a public company. The private equity firm, expected to post a profit of 47 cents a share, closed at $25.28 Friday, down from its June IPO price of $31 a share.

This week also brings profit reports from a few well-known companies that could help investors gauge consumers’ discretionary spending.

On Tuesday, Home Depot Inc. is expected to report a profit of 72 cents a share for its fourth quarter. The home goods retailer closed at $35.92 Friday, at the lower end of its 52-week range of $33.07 to $42.01.

Also Tuesday, Wal-Mart Stores Inc. is expected to report earnings of 77 cents per share. The discount retailer closed at $46.07, about midway in its 52-week range of $43.48 to $52.15.

Macy’s Inc. releases quarterly results Wednesday, when it is expected to report a profit of 27 cents a share for the second quarter. The department store operator closed at $33.63, at the lower end of its 52-week range of $32.31 to $46.70.

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