Markets Brace for Inflation Data After Oil's Biggest Jump Since 2022

Financial markets are wracked with anxiety right now about the potential impact of the recent spike in oil prices on overall inflation.

The price of Brent Crude, the international benchmark, soared to almost $120 per barrel -- the biggest jump since 2022 -- over the weekend before settling back a bit in recent days. Yet, as I write this on Wednesday morning, Brent is trading at about $91 a barrel, 28% higher than where it was just before the war began on Feb. 27.

And gasoline has climbed from about $2.94 for a gallon of regular (national average) a month ago to $3.58 today, according to the latest data from AAA. That's an increase of $0.64 a gallon, or around 22%. The sudden and dramatic increase in energy prices has investors deeply concerned about inflation.

All of this is not yet showing up just yet in the official data, but investors will want to keep a close eye.

Image source: Getty Images.

The latest Consumer Price Index data, which was published by the Bureau of Labor Statistics on Wednesday morning, showed inflation remained stable in February. Prices rose 2.4% year over year, about as expected, and 2.5% when more volatile food and energy prices are stripped out. That's still well above the Federal Reserve's long-term target of 2%, but it hasn't increased much from the prior month.

The upcoming March inflation report could dramatically move markets

Yet that February report is a reading of price inflation in the weeks preceding the beginning of the Iran war, so it doesn't take into account the recent spikes in oil and gasoline prices.

There is another reading of inflation due this Friday (March 13), the Personal Consumption Expenditures price index, which is in fact the Fed's preferred measure of changes in prices. But that report lags a month -- Friday's report will have data for January -- so it too will fail to catch the impact of the Iran war on prices.

As a result, investors and policymakers are already looking past it and focusing on the next CPI reading, on April 10 before the stock market opens, which will count the impact of the sudden rise in energy prices in March.

That report may be the most anticipated economic data release of the year, as it will document the impact of the increase in fuel and energy costs on everyday prices, from gasoline to fertilizer to manufactured goods and groceries, which embed the higher transportation and energy costs.

The March inflation data will also indicate how much leeway the Fed has to cut its target interest rate in 2026. As a result, it could dramatically move markets. Investors will need to brace themselves.

Until the March CPI report is published, I expect market volatility to remain elevated, as investor nervousness about inflation and its impact continues.

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