Rising oil and commodity prices boosting inflation expectations - AmpGFX

According to Greg Gibbs, Analyst at Amplifying Global FX Capital, while higher oil prices threaten to undermine consumer demand, to date there is little evidence that consumers are excessively burdened. 

Key Quotes

“Gasoline demand in the US continues to move along an above average path for this time of year.”

“Oil prices have risen in part due to ongoing OPEC-led supply restrictions and political tension in the Middle East.  However, there is also signs of rising demand, contributing to lower inventories. More analysts are projecting higher prices.”

“The oil futures curve is moderately inverted (in backwardation), possibly indicative of expectations that the price of oil will fall from the recent more elevated levels.  However, the degree of backwardation might be considered the normal state.”

“Higher oil prices are contributing to higher inflation expectations, and this may encourage a somewhat more hawkish stance from central banks, particularly if they see the rise as coming from higher demand; implying the recent price rises may be sustained.”

“Oil price gains in the last year have contributed to higher average US inflation expectations over the long term.  Inflation expectations have been steady over the last month at around their high in the US since 2014, somewhat lagging the rise in oil prices to a new high in recent weeks.”

“Long-term inflation expectations in the US and Eurozone between 5 and 10  years ahead are less likely to be influenced by oil prices, and have not changed much this year, as measured by inflation-linked swaps.  But Eurozone expectations have increased from their recent low in March/April.”