MUFG’s Head of Research Derek Halpenny notes that the proposed IEA-coordinated Oil reserve release could temporarily offset supply disruption in the Strait of Hormuz, but markets are shifting focus to US inflation. He highlights today’s US CPI data and models a scenario where higher Nymex crude lifts US energy CPI and headline CPI.

Energy shock and CPI path

“There has been a constant focus on trying to gauge the scale of the impact on inflation from the conflict as the inflation shock will determine the potential monetary policy response and the impact on economic growth. That focus will intensify further today with the release of the US CPI data for February. This will be the last US report before we begin to see the repercussions of the attack in the CPI data next month.”

“The consensus for today is for headline CPI to show a pick-up in the MoM gain from 0.2% to 0.3% but the core is expected to slow 0.1ppt to 0.2%. The annual rates are set to remain stable at 2.4% and 2.5% respectively.”

“Next month, energy is where we will see the impact come though quickly. US gasoline prices have surged quickly with the AAA national daily average gasoline price surging 18% in March to-date through to 9th March, to the highest level since July 2024. The current energy weight in headline CPI as of December was 6.38% and if we run a scenario of Nymex crude moving higher to USD 100 p/bl in Q1-Q2 this year but then subsiding back to USD 70 p/bl by year-end it could translate to US energy CPI peaking at somewhere between 15-20% by mid-year.”

“That pass-through would imply around a potential 1.0ppt lift to headline CPI, assuming natural gas price rises are more modest. US YoY energy CPI in Q4 was -20%.”

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