FED officials have reiterated many a times that with 2016 approaching and crude oil already very low, its effect over inflation will fade with time, technically due to the base effect largely. Crude oil’s more than 60% drop since 2014 has been one of the key factor behind depressed inflation globally. It’s not unusual though, the major factor behind 70’s inflation spike has been oil and Middle East embargo.
Our simple data mining suggests, whatever the policy makers suggest, oil is still the single biggest influencer of inflation expectations.
After slumping to lowest level around 1.2 in February, 10 year breakeven inflation jumped to 1.72 by April end, it’s about same time Crude made its recent peak, along with other commodities.
20 day rolling correlation between WTI crude and 10 year break-even inflation is at 79%, while 60 day rolling us at 85.5%.
So, it’s fun to wonder, who decides over inflation – FOMC with its policies or Saudi Arabia with its oil supplies.
The material has been provided by InstaForex Company – www.instaforex.com