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Oil Prices Gain 2% As Inflation Data Remains Hot

Oil prices gained over 2% on Wednesday amid the release of U.S. consumer price data for March showing consistent inflation pressure that has analysts predicting the Federal Reserve will raise interest rates in May.

The U.S. Consumer Price Index (CPI) rose a slight 0.1%, compared to its 0.4% increase in February, according to Department of Labor data released Wednesday.

Year-to-date, the CPI is up 5%, compared to 6% year-to-date in February.

The Dow edged up slightly on the CPI data, which suggests slowing inflation, but not enough to inject a great deal of optimism in the economy. The March CPI increase represents the smallest increase since May 2021. 

The ~2% oil price gain comes as analysts had expected a higher increase in the CPI.

At 12:55 p.m. EST on Wednesday, Brent crude was trading up 2% at $87.32, for a $1.71 gain on the day. West Texas Intermediate (WTI) was trading up 2.16% at $83.29, for a $1.76 gain on the day.  

"The CPI number implies, to a certain degree, that the Fed will start cutting rates by the end of the year. That's a positive demand development for energy," Robert Yawger, director of energy futures at Mizuho Securities, told Reuters.

The dollar also dropped sharply on Wednesday in response to the lower-than-expected CPI increase.

Speaking to Reuters on Wednesday, Convera senior market analyst Joe Manimbo said that “Headline inflation coming down more than expected is backing the view of the Fed being basically one more and done”.

Also on Wednesday, Neil Dutta, head of economics at Renaissance Macro Research, was cited by Yahoo Finance as saying that “the odds of stagflation went down while the odds of a soft-landing went up”. 

By Tom Kool for Oilprice.com

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