US CPI & Oil Prices: Will Inflation Fear Sink Markets Again?
US CPI & Oil Prices: Will Inflation Fear Sink Markets Again?
By:Ilya Spivak
US CPI data threatens to revive inflation fears just when cooling oil prices offered markets some relief.
- Crude oil swings wildly after touching $120 amid the US-Iran war
- Stocks, bonds, gold, and the US dollar seesaw with energy prices
- US inflation data now in focus as markets test Fed rate-cut hopes
Financial markets are once again being driven by the same dominant theme: inflation and what it means for Federal Reserve policy. The latest twist in that story comes once again from crude oil, where dramatic price swings are rippling through currencies, bonds, metals, and equities.
Oil prices briefly surged to nearly $120 per barrel, the highest level in more than a decade, as the ongoing war between the United States and Iran threatened shipping through the Strait of Hormuz, one of the world’s most critical energy chokepoints. The spike reflected fears that the conflict could severely disrupt oil flows from the Persian Gulf.
Wild crude oil price swings scramble markets
Those fears seem to have cooled somewhat, at least for now.
Speculation that the G7 might coordinate the release of strategic petroleum reserves helped drive prices lower after an initial surge at this week’s trading open. Comments from US President Donald Trump also briefly fueled hopes that the conflict might be nearing an end, though those remarks were later partially walked back. The result has been a period of sharp volatility followed by sideways consolidation in crude oil prices.
These swings have echoed across financial markets. The US dollar has pulled, having rallied as rising oil prices threatened to keep inflation elevated and force the Fed to delay rate cuts. Treasury yields have moved lower as well, reflecting a modest easing in inflation worries now that oil prices have cooled from their peak. Gold has edged higher as falling yields modestly flattered non-interest-bearing assets.
Equities have also benefited from the shift. The S&P 500 has bounced back into the consolidation range that has defined price action since October, when Fed Chair Jerome Powell warned investors against over-extrapolating expectations for rapid policy easing. Since that moment, the major US stock indexes have struggled to break to new highs.
US CPI report: will inflation fears return?
From here, the next catalyst for the markets is likely to come from inflation data itself.
Economists expect the upcoming US consumer price index (CPI) report to show headline inflation came to 2.4% year-on-year in February. Core CPI excluding volatile food and energy prices is penciled in at 2.5% year-on-year. These outcomes would leave both readings unchanged from the prior month, if they are realized as projected.
However, a look under the surface flags a critical risk looming ahead. A drop in energy prices’ contribution to headline inflation was a critical driver of the CPI result in January. Repeating that trick seems devilishly difficult with oil prices already on the rise from the start of 2026, well before the latest wartime fireworks.
Whatever this might mean for the energy component in February’s data, traders will be keen to seen that core price growth – especially in the service sector – continued to inch lower. That may feed hopes for normalization once the guns booming around the Persian Gulf go silent, helping to soothe the markets’ frazzled nerves.
If not, fragile financial markets may succumb to another round of “risk off” volatility as investors once again confront the possibility that interest rates will remain higher for longer. That would bode ill for stocks, bonds, and currencies other than the US dollar.
Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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