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A surprise production cut from OPEC+ oil producers, including Saudi Arabia, may complicate the Federal Reserve's mission to combat inflation and potentially worsen it.

Summary

• Energy prices surged globally last year due to Russia's invasion of Ukraine, causing inflation when major economies were just recovering from the pandemic.
• A decrease in energy prices helped cool US inflation from its peak of 9.1% in June to 6% in February YoY according to the Consumer Price Index.
• Energy prices, which make up around 7.5% of the overall index, were up 5% YoY in February, much lower than the 41.3% increase in June 2021.
• With oil prices surging once again, headline inflation may stay elevated for longer or even increase. The national per-gallon average stood at $3.55 on Thursday, up from $3.40 a month ago.
• Fed officials focus on core inflation, which excludes volatile food and energy prices. However, sustained higher oil prices may push up core prices eventually.
• Higher energy costs can also soften consumer sentiment and spending, which have recently started to cool. Plastic resin, which is used to create everyday items, is a crude oil derivative. Jet fuel costs affect airfare prices.
• Weak consumer spending could reduce inflationary pressure for service-providing businesses, but it may also increase the chances of the US going into a recession.
• The volatility of oil prices makes them difficult to track, according to James Bullard, president of the Federal Reserve Bank of St. Louis. However, he acknowledged the eventual impact of higher prices on inflation.