Tomorrow’s CPI Release. Oil Prices Will Be Key For The Remainder of 2023.

Headline CPI will tick up from August’s 3.7% year-over-year figure as Energy prices climbed higher in September on the strength of oil prices (oil prices have since retreated in October). Food likely ticked higher as did Shelter, which lags meaningfully (approximately one year). Keep an eye on oil prices for the remainder of the year for clues as to how the Fed may manage its Fed Funds Rate.

• I disagree that the Fed does not consider oil prices when deciding whether or not to raise its Fed Funds Rate. My view is that as the price of oil increases, the pressure on the Fed to create a deflationary environment (i.e. a recession) increases. For example, if oil were to approach $100 per barrel over the next 4-8 weeks, the Fed would be under pressure to offset that oil price increase with price decreases for other goods and services.

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