What might oil back above $90 mean for US inflation?

George Brown

With surging oil prices continuing to make investors nervous as US inflation climbs sharply, we look at the implications for the global economy.

A little over a year ago, the annual rate of US CPI inflation stood at a four-decade high of around 9%. Today, it is 3.7%. This stark reversal has been largely due to last year’s jump in energy prices unwinding. But output cuts by OPEC+ have seen oil prices rise by 20% over the past three months, with Brent crude back above $90 per barrel for the first time since November 2022. This is in complete contrast to last year when recession fears drove prices down 20% over the same period.

Will the increased energy costs be largely absorbed by US business?

Alongside numerous unplanned refinery outages, this has caused gasoline prices to spike just as the US summer driving season moved into top gear. In August alone, pump prices rose some 30 cents to $3.80 per gallon.

After accounting for seasonal effects, the contribution of gasoline prices in the US ought to shift from -1.0 to -0.1 percentage points to annual CPI inflation in August. In isolation, this would push the US headline CPI rate back above 4% in August.

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