Oil gains momentum following US inflation data

Oil prices have gained upward momentum following the latest US inflation data released by the US Bureau of Labor Statistics (BLS).

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The US inflation rate, based on the Consumer Price Index for all urban consumers (CPI-U), increased by 0.2% in July, after rising by 0.3% in June. On an annual basis, the US CPI advanced 2.7% last month, matching the growth seen in June.

Oil prices have inched higher following the inflation data, as it increases the likelihood of interest rate cuts by the US Federal Reserve (Fed) at its upcoming meeting in September, according to analysts.

The broader financial market had expected annual headline inflation to come in at 2.8%, according to SPI Asset Management managing partner Stephen Innes. The CPI data is “just enough rope to give Powell [Fed chief Jerome Powell] and company political cover to trim rates,” Innes said.

The US central bank remains focused on bringing inflation down to its 2% target. Innes expects the US Fed to cut interest rates by 25 basis points when they convene next month, “and keeps a side door ajar for a full 50bp [50 basis points cut].”

Lower interest rates in the US can boost demand growth and make dollar-denominated commodities like oil more affordable for holders of other currencies.

By Aparupa Mazumder

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