Wall Street Sees Inflation Easing Even With Oil Above $90

The U.S. Consumer Price Index report is scheduled for release on Wednesday, with analysts forecasting that inflation indicators will continue to ease in September, even with oil prices above $90. For September, economists anticipate headline inflation growth of 0.5% month-over-month and 3.6%-3.7% year-over-year, up from 0.4% month-over-month and 3.4% year-over-year in August.

Core CPI, which excludes volatile energy and food prices, is expected to rise by 0.2% in September, down from 0.3% in August, with the annual core inflation rate staying steady at 2.4%. The likelihood of a Federal Reserve interest rate hike during the October 27-28 meeting has plummeted to around 19%-20%, a substantial drop from over 70% in late September.

Jeffrey Schulze, head investment strategist at the Franklin Templeton Institute, attributes the cooling trend to supply shocks and tariff disruptions, including AI-related spikes in consumer goods prices. However, as we approach 2027, some of these risks may start to ease. While headline inflation highlights the impact of rising crude prices, core inflation categories have remained resilient, showing no significant signs of pass-through pricing.

Airfare has absorbed the brunt of energy shocks, with increases surpassing 2% month-over-month in July and August, and a 25% year-over-year rise due to soaring jet fuel costs. Fuel accounts for 17%-21% of an airline's total operating expenses, making ticket pricing highly sensitive to oil price spikes. Conversely, most retail and manufacturing sectors typically experience pass-through effects over several months or even quarters.

Experts believe these effects will likely become apparent closer to the end of the year, rather than in September. Brent crude for December delivery slipped 2.0% to $104.60 per barrel, while WTI crude for November delivery fell by a similar margin to trade at $91.89 per barrel. Gasoline prices in the U.S. dropped to $4.3413 per gallon, down from $4.8133 a month prior, though still higher than pre-war levels in late February.

Diesel prices remain largely unchanged, averaging $6.2787 per gallon. In a bid to curb rising fuel costs, President Donald Trump reached a deal with Russian President Vladimir Putin to supply Russian diesel to U.S. and global markets. Russia has pledged to release over 300,000 metric tons of diesel fuel immediately, with a further 500,000 metric tons scheduled for November 2026, and potentially 1 million metric tons more depending on the condition of Russian oil refineries.

The U.S. Treasury Department issued a general license suspending sanctions on Russian diesel exports until April 7, 2027, although other assets remain frozen. However, the deal has faced criticism from both Republicans and Democrats in Congress, who argue it violates a 2022 law banning Russian energy imports. European leaders have also voiced opposition, urging increased pressure on Moscow, while energy experts contend the deliveries will have minimal impact on fuel prices.