Yo-yoing oil prices driven by the war with Iran remain a key component to watch in monthly inflation data, although they’re expected to have a mild effect on July’s numbers.
The latest report, which will be released on Wednesday morning, arrives after a roller-coaster month for oil markets. In July, the global price of oil soared briefly above $100 a barrel. It then dropped to the low $80s before ticking back up toward the end of the month.
Higher energy prices sent overall inflation soaring in May, while falling prices in June reduced overall inflation. The price of oil in July was, on average, lower than in June. As a result, analysts expect to see the drop in gasoline prices reflected in a slightly cooler inflation reading for July.
Oil prices “didn’t stay at those levels long enough for it to kind of seep into successive months after months after months,” said Chris Hyzy, chief investment officer for Merrill and Bank of America Private Bank.
The average price of Brent crude, the global benchmark, was $84.43 a barrel in June. That’s fallen to an average of $83.51 a barrel in July.
Investors are also betting oil prices will continue falling in the long run. Prices for oil contracts for December delivery have also fallen. In June, investors priced that contract at an average of $80.38 a barrel. That average fell to $79.32 a barrel in July.
“This latest pullback in the headline number is because of the pullback in gas and oil prices the last couple of months prior to this latest escalation, and this latest escalation hasn’t been embedded enough for it to have a big effect,” Mr. Hyzy said.
Crude oil is a primary ingredient for gas — which means prices at the pump, on average, also dipped last month.
Because of that moderation, they expect core inflation — which measures price increases without factoring in volatile categories like food and energy — to be slightly higher than overall inflation.
Mark Zandi, chief economist at Moody’s Analytics, said that a shortage of global refining capacity to convert crude oil to gasoline could be mitigating the decline in gas prices.
Gas prices have, however, ticked up in August. The average price of a gallon of gas is $4.04 a gallon, up from $3.88 a month ago, according to AAA. Brent crude is also sitting higher than the July average, around $89 a barrel.
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