Inflation and Oil: A Western Saga of Prices and Peril

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In the stern chronicles of our day, the Bureau of Labor Statistics, that inexorable clerk of the public ledger, proclaims that the April CPI shall be laid bare before the nation on Tuesday.

And yet we are invited to accept as gospel that another great ascent in the price of ordinary goods will unfold, following March’s tumult, driven by the ceaseless ascent of oil, as if a distant quarrel between nations could not refrain from stepping into every kitchen and marketplace with a pompous flourish.

The monthly CPI is imagined to rise by 0.6 percent, as March climbed 0.9 percent, while the year-over-year measure is whispered to reach 3.7 percent, the loftiest since September 2023 and surpassing March’s 3.3 percent, because fortune loves a spectacle and prices are as fond of drama as any theater troupe.

Core CPI, those stubborn things that exclude the capricious foods and the mercurial energy, are foreseen at 0.4 percent for the month and 2.7 percent for the year, as if the common man’s bread could still be teased into obedience by numbers on a page.

From the onset of the Middle Eastern strife on February 28 to the close of April, the barrel of West Texas Intermediate has climbed by more than fifty percent. Though crude renewed a modest retreat in the first week of May, it remains some forty percent above the level at which it stood before the US-Iran fray-an indignity to the patience of the world and a source of quiet astonishment to those who believe that markets are governed by angels in white gloves.

Previewing the inflation data, “our economists expect headline inflation to rise by +0.58% month-on-month, a modest echo of March’s +0.9%, yet still obstinately firm,” remarked Deutsche Bank’s Jim Reid, as though he were delivering a sermon on the stubbornness of human affairs.

“In contrast, the core measure is projected to accelerate to +0.39% MoM from +0.2%, suggesting underlying price pressures remain sticky even as energy-related effects fade. The YoY rates would move from 3.3% to 3.8% for the former and from 2.6% to 2.8% for the latter,” Reid added.

What to Expect in the Next CPI Data Report?

The April CPI will bear the mark of persistently high oil prices upon inflation, a burden that sits upon the table like an uninvited guest at a banquet. Since such a guest is anticipated, the core figures will serve as the lantern by which markets may judge whether energy costs creep into every nook of the economy and lift prices in ways both subtle and insistent.

A reading above the market’s expectation of 0.4% in the monthly core CPI could feed the fires of fear that inflation has taken up permanent residence. Conversely, a print below forecasts could ease the trembling hands of those who worry that prices may run away like a horse once set free. Still, even in that more forgiving scenario, investors shall not breathe easy, for the US-Iran crisis remains unresolved and the lack of naval activity in the Strait of Hormuz continues to threaten the delicate threads of global energy chains.

Minneapolis Federal Reserve President Neel Kashkari warned that the price shock from a prolongation of the strait’s closure could threaten inflation expectations and demands a resolute policy response, lest the people grow weary of waiting for a cure that never comes.

In similar mood, St. Louis Fed President Alberto Musalem observed that inflation sits well above the Fed’s target and urged the guardians of policy to beware not only the tariff and oil shocks but also the deeper currents that carry price pressure under the surface.

How Could the US Consumer Price Index Report Affect EUR/USD?

Markets currently assign about a 73% probability that the Fed will hold the policy rate at 3.5%-3.75% by year’s end, and bake in roughly a 20% chance of a 25 basis point increase, according to the CME FedWatch Tool. A stronger-than-expected monthly core CPI for April could nudge investors toward expecting a rate hike later in the year, rewarding the dollar with a swaggering strength in the near term.

On the other hand, a softer core CPI print might quiet the guns of hawkishness, at least for a time. Yet, unless some grand revelation suggests the US-Iran conflict will soon bow out of the stage, any fall in the USD could prove as fleeting as a mirage at a desert carnival.

“Investors will be on heightened alert for the possibility of further delays to the first rate cut – or even an inability to ease in 2H26 altogether – should energy prices rise sharply and persistently due to an escalation or prolongation of the Middle East conflict,” explained Alvin Liew of UOB Group.

“A broader oil-related price spillover across the CPI basket would materially complicate the inflation outlook, raising the risk that the anticipated year-end cut is pushed into 2027,” Liew elaborates.

Eren Sengezer, FXStreet European Session Lead Analyst, offers a brief technical outlook for EUR/USD.

“EUR/USD’s near-term technical outlook points to a bullish stance that lacks strength. The RSI on the daily chart hovers above 50 but retreats after testing 60, and the pair struggles to climb away from the 20-day SMA despite closing well above it to end the previous week.”

“On the upside, the first resistance zone sits at roughly 1.1800-1.1820, where the upper boundary of the Bollinger Band and the 61.8% Fibonacci retracement from February to April align. If EUR/USD can steady above this region, 1.1900-1.1910 (round number, 78.6% retracement) could be seen as the next obstacle before the one labeled 1.2000 (the psychological fortress).”

“Looking south, a sturdy support seems formed around 1.1730-1.1680 (50% retracement, 100-day SMA, 200-day SMA). If EUR/USD should slip below this guard and turn it into resistance, the sober technical sellers may act. In such a turn, 1.1660 (ascending trend line) could serve as a bridge to 1.1560 (23.6% retracement),” the analyst adds.

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2026-05-12 09:22