The financial world is consumed with inflation worries as the US 2-year yield spikes to 5.06% but this is an important chart to keep in mind.
A year ago today, WTI crude oil closed at $123.70, which is the highest dating back to 2008. From the $130.15 peak, it's down 41%.
As we lap those peaks, it's an extraordinary deflationary driver that's destined to be repeated again in the natural gas market when it laps the September peak (-75% since then).
It takes time for energy costs to work their way into consumer prices but what was a tailwind for inflation is now a headwind.
Another notable part of this chart is that prices didn't really spike until after February 2022. For most of that month, including when CPI was surveyed, it was in the $90 range so we're not going to get a big downward y/y drop in the February 2023 data to be released next week. The big drop will come in March data, which will be released in mid-April. That may be when we start to get downward surprises in inflation and the market narrative reverses back to 'peak Fed funds'.
