How rising energy prices could push inflation higher

Akiko Fujita and Luke Carberry Mogan
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In this article:

Yahoo Finance Markets Reporter Jared Blikre breaks down the July CPI report data tied to rising fuel and energy prices, which economists are pointing to as a potential driver for future inflation woes.

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Video Transcript

- Well, investors largely viewing today's CPI report positively, but there could be a looming threat to inflation, and that is energy. Yahoo Finance's Jared Blikre is here with a closer look at the energy space. Jared.

JARED BLIKRE: That's right, Akiko. Those headline numbers relatively benign and importantly in line with expectations. But when you dig down in some of these energy subcomponents, I'm seeing some huge month over month gains. Here in fuel oil, that's 3% up in only one month. That's 300 basis points. Gasoline up 2/10 of a percent. That's 20 basis points. Utilities, 200 basis points. And only electricity that's moving down 7/10 of a percent. That's moving in the right direction.

But you take a look at some of these numbers on the year and year, a lot of them are down 10%, 20%. So what's going on here? Well, I think this is most easily illustrated with the futures market here. You're going to see prices reflected in the futures before they show up in the inflation report. And here we have our heat map covering the last year. Lots of symbols here.

So I just want to point out a few things. Natural gas down 66%. Crude oil here, CL equals F, down 10%. And the only thing really gaining right here, we got softs and some livestock. But for the most part, energy has been under a tremendous amount of pressure when measured over the last year.

But you change this to a two-month look, and some of the biggest losers are now some of the biggest gainers. Heating oil, that's up 33%. That's HO equals F in the upper left. Natural gas, NG equals F, that's up 22%. Crude oil up 18%. So the trend over the last couple of months definitely on the upswing.

And this is being noticed by investors as well. Here is a five-day look at the S&P 500 sectors. You're going to see XLE. That's energy. That's up 2%. You take a look at the one month trailing results. Energy up 8.7%. That is a number one sector. Let's look at 2%. Energy, again, number one. But year to date, energy actually barely positive, 1.2%. So really within the last couple of months, things have really been on the upswing for energy.

Now just getting back to the original point here. When we're thinking about inflation, and I want to show, this is separate but related. Inflation, the returns that we're seeing in the stock market overall. The S&P 500 on days like today, when we get the inflation prints, those have largely been tracking the overall market.

In blue, I have SPY. That's the S&P 500 SPDR ETF. And in orange, I have CPI reactions. And you can see, this goes back five years. Since we got this October bottom, we have seen returns on CPI data, though on CPI days, those have really outperformed. And that has been the basis for a lot of the gains we've seen this year.

So I'm thinking a month ahead, two months ahead, if we see a big down reaction in the market on one of these CPI days, well, that could very well mean that the top is in, at least temporarily, on this market. Guys.

- Yeah. Interesting to see those charts correlating there. Jared Blikre, as always, thanks so much.

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