• Upside surprises on oil are leading to higher US inflation surprises
• Oil prices are more correlated to core CPI than house prices
• The US real curve is close to historical extremes, so could flatten.
Inflation hawks are falling over themselves to claim we are entering a new paradigm of 1970s-style inflation. A headline number of 6.2% for US CPI in October is higher than the 5.6% reached in the summer of 2008 and only slightly lower than the 6.3% reached in 1990. But these inflation spikes have in common are oil price spikes. Indeed, we shouldn’t forget that over the past year, the annual % change in oil prices at various points has exceeded the second oil shock of the 1970s (Chart 1). Last month, oil prices rose 11%, which followed 10% in September. No wonder we are seeing upside inflation surprises.
• Upside surprises on oil are leading to higher US inflation surprises
• Oil prices are more correlated to core CPI than house prices
• The US real curve is close to historical extremes, so could flatten.
Inflation hawks are falling over themselves to claim we are entering a new paradigm of 1970s-style inflation. A headline number of 6.2% for US CPI in October is higher than the 5.6% reached in the summer of 2008 and only slightly lower than the 6.3% reached in 1990. But these inflation spikes have in common are oil price spikes. Indeed, we shouldn’t forget that over the past year, the annual % change in oil prices at various points has exceeded the second oil shock of the 1970s (Chart 1). Last month, oil prices rose 11%, which followed 10% in September. No wonder we are seeing upside inflation surprises.
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