US inflation hits fresh 40-year high

By Lukman Otunuga

Inflation in the world’s largest economy hit a new 40 year high at 7.9% in February thanks to strong demand and supply constraints. With inflation expected to remain at elevated levels due to the surge in global oil prices, consumer prices are expected to hit double digits in the short to medium term. Today’s data has certainly sealed expectations over the Federal Reserve raising interest rates next week with markets pricing in six US rate hikes in 2022.

In other news, oil prices rebounded on Thursday amid confusion over whether major oil producers will plug the gapping hole created by the ban of Russia oil imports. Overall, this has been a positive week for the global commodity which is up over 45% year-to-date. Given how the fundamentals remain in favour of higher oil prices with the latest developments creating further disruptions in the global energy market, oil could appreciate further.

Indeed, the Nigerian oil minister sees crude oil hovering near $150 by the end of 2022. This will mark a fresh all-time high, mainly driven by supply side factors and geopolitics. Given how Nigeria is still dealing with sub optimal oil production and fuel subsidies, the positive impacts of higher oil may not be fully reflected in Africa’s largest economy.

Looking at the technical picture, oil’s explosive momentum on the monthly timeframe resembles a speeding train reaching maximum velocity with geopolitics keeping the engines running at maximum capacity. Things are looking incredibly bullish with the first key level of interest being the all-time high at $147.50. A breakout above this level will open the doors to uncharted territories. If the upside momentum runs out of steam, Brent could decline back towards $100.

Otunuga is a Senior Research Analyst at FXTM