Economist Peter Schiff warned that a rise in Brent crude above $100 could reverse the 0.4% monthly CPI decline in June and produce a sharp pullback in US inflation in July.
Summary
- Peter Schiff warns that oil’s return above $100 could push the July price level even higher.
- Brent rose as the Houthi offensive and shipping restrictions intensified global supply concerns.
- Markets are pricing in a 37.6% chance of a July Fed rate hike.
Peter Schiff linked the risk to oil’s rapid recovery after energy costs helped pull headline inflation below June forecasts. In a post on X, Schiff noted that crude had already risen nearly 30% in July and was back above $90 per barrel when he issued the warning.
“Investors celebrated June’s CPI, as a 30% drop in oil prices led to a bigger-than-expected decline. But so far in July, oil prices have already risen 30%, back above $90 per barrel.”
At the time, Schiff estimated that a move to $100 before the end of July would represent a 43% increase from oil’s recent lows. Brent crossed that level after hours as Saudi tank attacks posed another threat to energy exports from the Middle East.
“If the price hits $100 by the end of the month, that will be a 43% increase. July’s CPI could be confusing!” Schiff added.
In response to a user who asked if the increase would only produce a short-term supply shock, Schiff argued that the June upgrade is largely dependent on cheaper oil. In his view, an even bigger hike in July could reverse much of that supply rather than create a new source of inflation.
The oil revolution threatens to increase July’s currency strength
June data from the US Bureau of Labor Statistics showed that the headline CPI fell 0.4% from May, compared with a 0.1% decline among economists polled by Reuters. Annual inflation eased to 3.5% from 4.2%, also beating the consensus estimate of 3.8%.
Energy prices provided much of that relief. According to the BLS, the energy index fell 5.7% in June, its steepest monthly drop since April 2020, while gasoline prices fell 9.7%. Core CPI, which excludes food and energy, was unchanged in the month and rose 2.6% from a year ago.
Despite the fall in June, the BLS reported that electricity prices remained 15.7% higher than last year. Gasoline rose 26.7% over the same period, leaving household costs exposed to further increases if crude prices continue to rise until the end of July.
Concerns about new supply have since changed direction in the oil market. Brent rose nearly 7% to $100.71 on Thursday, its highest level in nearly two months, while US West Texas Intermediate traded above $90 for the first time since June.
Oil prices rose following the Houthi attack on two Saudi tankers in the Red Sea and the announced blockade of Saudi-linked cargo through the Bab el-Mandeb Strait. The threat has become more serious because Saudi exporters rely heavily on that route while tanker traffic in the Strait of Hormuz remains severely restricted.
According to Reuters, Iranian oil exports have also dropped from 2 million barrels per day to almost zero during the conflict. Analysts at Goldman Sachs told the news agency that Brent could exceed $120 if the disruption continues, although that forecast depends on the timing and scale of supply losses.
Diplomatic efforts have not restored stable shipping conditions. US Secretary of State Marco Rubio emphasized Washington’s willingness to negotiate but accused Iran of failing to show that it is willing to reach an agreement. Continued US strikes and Iranian military activity have kept traders focused on potential damage to oil infrastructure and transportation routes.
Fed traders still like the July hold
Higher energy prices also weighed on expectations for the Federal Reserve’s July 28–29 meeting. Fed officials have treated oil as a key influence on inflation, while several policymakers have argued that a single cool CPI report is not enough to establish a lasting downward trend.
Fed Governor Christopher Waller said after the June inflation release that he would need to see “several months” of softer data before he had any hope of inflation returning to the central bank’s 2% target.
Futures traders have not favored a change in the July meeting since July 23. Market prices indicated a 62.1% chance that the Fed would keep its target range at 3.50%–3.75%, while giving a 37.9% chance of a quarterly hike, according to data from the CME FedWatch Tool.
The odds of a July hike have increased significantly since the inflation report. On July 14, traders initially placed only a 10% chance on an increase after June’s CPI came in below forecasts.
Inflation data for July will not come before the Fed meeting, as the BLS has scheduled a report on August 12. Therefore, policy makers will make their decision without knowing the full effect of the increase in oil, while Schiff’s warning points to energy prices as a possible obstacle to increasing the progress of June inflation.
