Column: Rising oil prices are fuelling expected inflation: Kemp | Reuters

Column: Rising oil prices are fuelling expected inflation: Kemp | Reuters

Past changes in oil prices are closely associated with U.S. consumers’ and investors’ expectations for overall inflation in future, which helps explain why they are sensitive for central banks and other policymakers.

In the last three decades, the rise and fall in oil prices has correlated with expectations about future inflation measured by the University of Michigan’s monthly consumer survey and breakeven rates derived from U.S. Treasury Inflation Protected Securities (TIPS).

Cyclical changes in Brent prices over the previous 12 months have a pronounced association with changes in the expected rate of all-items inflation over the next 12 months in the University of Michigan survey.

Price changes also have a pronounced association with changes in the expected rate of all-items inflation over the next five and ten years evident in U.S. Treasury breakeven rates.