U.S. Outlook: What will the oil price spike do to consumer inflation?

Scott Anderson
Chief Economist

The price of oil and inflation are positively – and highly – correlated. In other words, as oil prices increase or decrease, inflation moves in the same direction. This is because oil is a major input in the U.S. economy: It is used for essential activities like the transportation of goods, gasoline for cars, and heating homes.Oil rig and snow

For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on May 18.

Key observations:

  • The positive relationship between oil prices and inflation is evident in the time period from 2004 to the present, with a significant positive correlation of 0.78.
  • The Federal Reserve estimates that of the 13.1% increase in the price of Brent crude from January 5 to May 11, 7.3 percentage points are the result of changing supply and demand factors, with the remainder coming from changes in the value of the U.S. dollar and the risk premium.
  • The U.S. withdrawal from the Iran nuclear deal has increased the geopolitical risk premium for oil and stoked additional global oil supply concerns.
  • If tensions escalate in the Middle East and there is a sharp and sustained rise in oil prices and inflation, there is a rising possibility for additional rate hikes.

Read my full report.

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Investment Insights: What is the 800-pound hawk in financial markets?

Wade Balliet
Posted by Wade Balliet
Investment Strategy
Federal Reserve building at dusk

Investors have continued to grapple with the double-edged sword of a strengthening economy.

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Jumbo loans: 5 things for homebuyers to consider

Victor Polich
Mortgage Banking
Large 3-story house with 2-story detached garage, subtly lit at dusk.

Just as with any other loan, you need to make sure that a jumbo loan is a positive and sustainable fit for your lifestyle and finances.

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Succession & retirement planning: a double challenge for business owners

Michelle Di Gangi
Small Business Banking
Mother and daughter doing some woodworking in their studio.

The company is often the primary asset, so tapping into its value is essential to finance retirement.

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U.S. Outlook: Reading the tea leaves from the Loan Officer Survey

Scott Anderson
Chief Economist
Middle-aged couple talking to a female banker, who

What stood out to us was continued broad-based weakness in loan demand.

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