What happens to CPI with oil at $80? - Nomura

Oil prices will have risen nearly 80% y-o-y by mid-June, which will drive higher headline inflation in most G10 economies, according to analysts at Nomura.

Key Quotes

“We refresh our base effects calculations, finding that base effects are largest in Canada (+67bp by July). We don’t expect a hike from the BOC next week, but paired with the positive terms-of-trade shock from higher oil prices, higher inflation should cement a July hike. Base effects are also large in the euro area which, alongside a recovery from Easter weakness, could excite ECB hawks.”

“Our realtime estimate shows May headline HICP inflation accelerating to +1.7-1.8%, while it could hit 1.9% in July. In contrast, base effects on UK and Japanese inflation will be muted. This time around, peaking base effects will come at a potentially delicate time for markets.”

“Growth data outside of the US have not yet recovered from a weak Q1, and risk markets are showing signs of pain from rising US yields. Euro area inflation next week may support EUR, but the reaction of risk sentiment will be thus important too.”