Plunging Oil May Halt Fed’s Plans – Investing.com

Plunging Oil May Halt Fed’s Plans – Investing.com

This article was written exclusively for Investing.com

Wouldn’t it be ironic if, at the exact moment that the Fed threw up its hands and capitulated on its transitory narrative, inflation came crumbling down?

Inflation might be ready to take a turn lower, and it could show up as early as the November data release. 

One of the most highly correlated components of the consumer price index (CPI) and the producer price index () is , and oil has plunged by about 20% since Nov. 10. prices have also slid and are down over 22%.

These two commodities have been strongly correlated with the PPI and CPI over many years. Typically, inflation rates have substantial swings when these commodities have significant moves. 

YoY Change In CPI, Oil, Gasoline

Over the last 20-years, the one-year change in the CPI and oil correlate at 0.76, a very high reading (1 is perfect), and over 10 years, the correlation rises to roughly 0.83. So the odds would indicate that a move lower in oil prices should reproduce a move lower in the year-over-year change in CPI.

The correlation is stronger for gasoline, at 0.81 over the past 20 years and 0.87 over