Pass through price pressures due to rising oil are rapidly abating. A trio of charts on a daily, weekly, and monthly basis provide a good picture.

Crude Daily Chart

Crude Weekly Chart

Crude Monthly Chart

Inflation Hawks Worried

Crude closed at $39.44 for the week ending March 12, 2016.

Even with the steep decline in recent days, using a price of $48.00 as a reference, crude is up 21.7%  from a year ago.

This is the “welcome” price inflation that ECB president Mario Draghi sees when he brags about defeating deflation.

In the US, inflation hawks are worried.

Crude Percent Change From Year Ago 

Crude prices are up 75.96% from a year ago, but that may dip to the negative column by September.

CPI All Items

Assuming the prices of crude will stay near $48.00…

  • Year-over-year CPI All Items would likely show little movement in April, May, and September.
  • Year-over-year CPI All Items would be high in June, July, and August.
  • Year-over-year CPI All Items would be low or negative in November, December, and January of 2018.

    • If the Fed continues to hike, my expectation is oil prices decline.

    What If Discussion

    Those “what if” estimates do not factor in Trump’s economic policy, Border Adjustment Taxes (BAT), or tariffs.

    Finally, the CPI does not properly factor in health care costs or housing.

    In general, my view is that if actual home prices decline, the CPI will be overstated; and if home prices continue to rise, the CPI will be understated.

    For a discussion of home prices and the CPI, please see Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits.

    Also see Barry Ritholtz Asks “Why Has Inflation Remained Low for So Long?” Mish Asks “Is Inflation Low?”

    The Fed’s Asymmetric Policy of dealing with bubbles has made a big mess of things.

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