Inflation expectations rise ahead of the CPI report as oil prices spike amid the war in Ukraine

inflation, IBA, CPI
Photo by engin akyurt on Unsplash

Key Takeaways:

  • The London-based ICE Benchmark Administration calculated inflation expectations and their impact on the Federal Reserve’s actions.
  • While traders expect the February CPI report, the oil prices soar, fuelling the FUD.
  • The war in Ukraine could affect the Fed’s willingness to implement interest rate hikes.

YEREVAN ( – ICE Benchmark Administration (IBA), the entity that took over the administration of the London Interbank Offered Rate in 2014, released a new daily index to measure inflation expectations. Moreover, the index showed the expected pace of consumer price increases over the next year, rising from 3.5% on Feb. 1 to 5.24% on Mar. 7.

IBA calculates the implied market inflation expectations by sourcing price/yield data from the U.S. Treasury Inflation-Protected Securities (TIPS), Treasury Bills, Notes and Bonds, and the inflation-linked swaps markets.

Specified the IBA report.

Inflation expectations hurt the economy?

In detail, the U.S. Federal Reserve closely monitors long-term inflation expectations, as they tend to have real-world consequences akin to the self-fulfilling prophecy effect. A rise in longer-term inflation expectations could signify a loss of confidence in the Fed’s ability to keep the rising prices at bay.

Hence, that loss of trust could, in turn, make inflation itself harder to beat without painfully high and fast interest rate hikes. Timothy Bowler, a former U.S. Treasury official, and IBA President, underscored the importance of assessing expectations.

If that number keeps going up those that are setting monetary policy will start to notice higher trend inflation expectations getting priced into the system, and that might impact decision-making.

asserted the executive.

Also read: Bitcoin (BTC) price drops as U.S. Inflation jumps 7.5%, a 40-year high: Rebounds quickly as Bulls step in.

Moreover, the U.S. Bureau of Labor Statistics scheduled the Consumer Price Index (CPI) February report to be released on Mar. 10, 8:30 am E.T. The latter will reveal if the inflation rate complied with the estimations.

Meanwhile, as the war in Ukraine rages on, the oil prices peaked globally, hitting wallets worldwide.

Oil prices spike amid the war

As CoinChapter reported earlier, U.S. President Joe Biden banned Russian oil and gas imports over Russia’s invasion of Ukraine on Feb. 24. Furthermore, the White House commented that the more severe option would be for the U.S. to sanction Russian oil exports — not buying any Russian oil and refusing to engage with any nation that did.

As a result of the uncertainty around the global oil supply, the prices soared, briefly reaching nearly $130 for a barrel. However, the value dropped on Mar. 10 and settled short of $110 in the New York session.

Crude oil (USOIL) price. Source:
Crude oil (USOIL) price. Source:

The chart above indicates that the crude oil value has been rising since the invasion. Soaring fuel prices and fears of an economic slowdown might have further spurred the high inflation expectations.

Also read: U.S. bans Russian oil and gas import as risk assets tumble against the record-high fuel prices.

Furthermore, the fear and uncertainty caused by the war might dampen the Fed’s initial plans of increasing borrowing costs.

The meeting next week could result in the first interest rate hike of 2022. However, the further pace of tapering remains undecided.

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