I’m at WPR central time Today, among other things, to discuss: “Gas and oil prices are starting to pull back. We explore what this means for inflation and recession fears.”
Gasoline prices continued to fall, from $5.006 in the week ended 6/13 to $4.49 in the week ended 7/18.
resource: EIA through FRED.
That’s down 10.3% in five weeks. With gasoline’s 3.8% weighting in the overall CPI mix, a 10% drop for the month would imply a drop of about 0.4 percentage points on month-over-month inflation. Monthly inflation in June was 1.3%.
As pointed out in the past, most of the movement in gasoline prices is caused by oil prices (the rest are refinery restrictions). Here are Brent futures as of today:
figure 1: Brent crude oil prices as of July 19 (blue) and Brent crude oil last day futures prices (red squares). The NBER uses shades of grey to define the peak and trough dates of the recession. Sources: EIA, ino.com, NBER.
Of course, futures-based forecasts have very wide confidence intervals. Using options data, EIA estimated on July 7:
resource: U.S. Department of Energy EIA Short-Term Energy Outlookaccessed 19 July 2022.
Host Rob Ferrett also asked about recession, citing Jared Bernstein’s recent statement It is difficult to conclude that the US is currently in a recession. I agreewe are unlikely to be May or June (latest monthly data we have), but Many forecasters predict a recession in mid-to-late 2023. Based on the 10-year to 2-year term spread, it also looks likely (although sharply down, the 10-year to 3-month spread has yet to flash a recession).
figure 2: Specify the recession probability for the month, using the 10-year to 3-month spread (blue) and the 10-year to 2-year spread (brown). July 2022 Observations based on 7/19 data. Recession dates as defined by NBER are shaded from peak to trough in gray. Source: Treasury via FRED, NBER, author’s calculations.
image 3: 10yr-3mo Treasury spread (blue), 10yr-2yr spread (brown), both expressed as a percentage. July 2022 Observations based on 7/19 data. Recession dates as defined by NBER are shaded from peak to trough in gray. Source: Treasury via FRED, NBER.
