Inflation Will Recede If Oil Price Drops
Chart to illustrate the oil prices as a leading indicator of month over month inflation rates.
Inflation statistics mirror oil price action with a lag of about 1-2 months.
"Federal Reserve Chair Jerome Powell said in his semiannual testimony before the U.S. Senate Banking Committee in March 2022 that, as a rule of thumb, every $10 per barrel increase in the price of crude oil raises inflation by 0.2% and sets back economic growth 0.1%."
If he's right, which he appears to be, we should see inflation month over month drop by .2% when we get the stats on May 11th. That would take us down to 8.3%.
Headed in the right direction, but not fast enough.
Depending on what the Fed does this week and if oil prices have peaked and are rolling over, we might see more of a reprieve from inflation starting in June.
If it isn't enough, the Fed will have to raise rates by at least 50 basis points again.
This may be why Powell is suggesting there will be two 50 basis point jumps in May and June as "frontloading" the hikes and will slow down after.
That's probably the case because high inflation is about to whipsaw into a big recession (as is common after oil peaks and rolls over, historically speaking).
Inflation statistics mirror oil price action with a lag of about 1-2 months.
"Federal Reserve Chair Jerome Powell said in his semiannual testimony before the U.S. Senate Banking Committee in March 2022 that, as a rule of thumb, every $10 per barrel increase in the price of crude oil raises inflation by 0.2% and sets back economic growth 0.1%."
If he's right, which he appears to be, we should see inflation month over month drop by .2% when we get the stats on May 11th. That would take us down to 8.3%.
Headed in the right direction, but not fast enough.
Depending on what the Fed does this week and if oil prices have peaked and are rolling over, we might see more of a reprieve from inflation starting in June.
If it isn't enough, the Fed will have to raise rates by at least 50 basis points again.
This may be why Powell is suggesting there will be two 50 basis point jumps in May and June as "frontloading" the hikes and will slow down after.
That's probably the case because high inflation is about to whipsaw into a big recession (as is common after oil peaks and rolls over, historically speaking).
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Link to "Frontloading" story: www.bloomberg.com/ne...d-june-front-loading