Oil Prices and CPI
The real problem now isn’t just that CPI is high; it’s that inflation is spreading from energy into production and services.
As the war continues, risks to Russian refineries, Gulf oil facilities, and shipping remain. This will push up oil prices, diesel prices, freight rates, and insurance costs.
These costs first feed into PPI, then gradually pass through to the prices of goods and services, ultimately making CPI more persistent.
So the key chain right now is:
War/energy risks → higher oil prices and transportation costs → cost pressures spread through PPI → CPI becomes harder to bring down quickly → the Fed keeps interest rates high for longer → risk-asset valuations remain under pressure.
The Fed can suppress demand, but it can’t conjure up more crude oil, repair refineries, or lower shipping insurance premiums.
If supply disruptions persist, rate hikes alone can only offset inflation by squeezing consumption and investment—and the price is added pressure on both the economy and asset prices.
So right now, don’t focus only on whether a particular CPI reading is 0.1 higher or lower.
What really matters is whether inflation has shifted from an “energy problem” to an “across-the-board cost problem.”
If the answer is yes, then risk assets aren’t facing a one-off data shock, but a high-interest-rate environment that will last longer.
The real problem now isn’t just that CPI is high; it’s that inflation is spreading from energy into production and services.
As the war continues, risks to Russian refineries, Gulf oil facilities, and shipping remain. This will push up oil prices, diesel prices, freight rates, and insurance costs.
These costs first feed into PPI, then gradually pass through to the prices of goods and services, ultimately making CPI more persistent.
So the key chain right now is:
War/energy risks → higher oil prices and transportation costs → cost pressures spread through PPI → CPI becomes harder to bring down quickly → the Fed keeps interest rates high for longer → risk-asset valuations remain under pressure.
The Fed can suppress demand, but it can’t conjure up more crude oil, repair refineries, or lower shipping insurance premiums.
If supply disruptions persist, rate hikes alone can only offset inflation by squeezing consumption and investment—and the price is added pressure on both the economy and asset prices.
So right now, don’t focus only on whether a particular CPI reading is 0.1 higher or lower.
What really matters is whether inflation has shifted from an “energy problem” to an “across-the-board cost problem.”
If the answer is yes, then risk assets aren’t facing a one-off data shock, but a high-interest-rate environment that will last longer.