Inflation Could Get Worse Than Expected. Here’s Why.

Oil and how much it costs is the problem.

The price had been headed down but now it’s headed back up. As documented in thousands of articles in the business media over the decades: an increase in oil prices affects almost all businesses since it costs more to transport goods and to just drive down the road (for most drivers).

The general “expectations” consensus is that since oil had dropped lower this year then that’s the sort of trend that economists can depend on to continue. Unfortunately, the price charts strongly suggest otherwise. A close look at the key market indicators for the commodity may be returning to the dreaded upward-ness of trend.

Inflation, Oil Prices, Interest Rates.

This widely followed fund typically reflects the movement of West Texas Intermediate Crude and has taken out the April high. You can see how the 50-day moving average (the blue line) has turned back upward and now appears to moving in the direction of the 200-day moving average (the red line). That’s a bullish look.

It’s probably significant that the benchmark oil fund has this week closed above its 50-week moving average for 3 weeks in a row. Note how the price dipped below the 200-week moving average briefly in March but seems to have reversed, staying above it for months now.

Designed to reflect movement in the weekly price of gasoline, this fund is back above its 50-week moving average after a period from mid-2022 to early 2023 of flirting with crossing below it. Despite this week’s red selling candle, the summertime action looks bullish so far. Is a retest of the early 2022 high of 80 in the cards?

This weekly point-and-figure price chart for 10-Year yields — shown here in basis points — demonstrates how the years long uptrend remains in effect.

Note the astonishing rise in yields from the early 2020 pandemic scare low at .4% to the current 4.189%. It’s been an amazing ride in the 10-year yield and the ride may not be over yet, especially if oil prices continue to move upward. This picture shows how abnormal this seems compared to yields movement pre-2020.

The benchmark bond ETF drops to a new low for the year without waiting too long to see if oil prices go back down. When yields go up, bond prices go down as investors lose the faith in the longer-term fixed income sector.

The basic situation for the economy: if oil prices go higher that means the re-ignition of inflation and that leads to the possibility of higher interest rates and for longer than you’d like.