Don’t look to falling oil prices to stave off inflation now. Brent is down from above $100 to the low $90s; Saudi Arabia pumped 10.56 million barrels a day in October, back at pre-war levels and above its quota, and gasoline just posted its steepest one-day drop in 18 years. Consumer prices still rose an estimated 4% from a year earlier in October, with pump prices slightly lower, up from 3.7% in September, and core prices rose 0.3% in a single month. Expect the Fed to hike in December, but markets have already priced this in. October’s core reading hit the exact threshold Fed Governor Christopher Waller set for a half-point move.
Services and the AI buildout are keeping inflation high, and cheaper crude does nothing to either. Prices for doctor visits, childcare, restaurant meals and hotel stays are still climbing, and auto insurance rose 0.7% in October. Data center construction has pushed up the cost of chips, generation equipment and copper, and electronics are following. Smartphone prices rose 1.4% in October, the largest monthly jump on record, and television prices climbed 3.3% in a category where prices usually fall.
Energy costs will be high, even with cheaper crude. War-risk insurance, rerouting, and naval escorts through Hormuz add $20 to $30 to every barrel of Gulf crude. Diesel will stay tight while Ukrainian drone strikes keep about 30% of Russia’s refining capacity disrupted. U.S. crude still costs about $30 more than it did a year ago, and Saudi…
Don’t look to falling oil prices to stave off inflation now. Brent is down from above $100 to the low $90s; Saudi Arabia pumped 10.56 million barrels a day in October, back at pre-war levels and above its quota, and gasoline just posted its steepest one-day drop in 18 years. Consumer prices still rose an estimated 4% from a year earlier in October, with pump prices slightly lower, up from 3.7% in September, and core prices rose 0.3% in a single month. Expect the Fed to hike in December, but markets have already priced this in. October’s core reading hit the exact threshold Fed Governor Christopher Waller set for a half-point move.
Services and the AI buildout are keeping inflation high, and cheaper crude does nothing to either. Prices for doctor visits, childcare, restaurant meals and hotel stays are still climbing, and auto insurance rose 0.7% in October. Data center construction has pushed up the cost of chips, generation equipment and copper, and electronics are following. Smartphone prices rose 1.4% in October, the largest monthly jump on record, and television prices climbed 3.3% in a category where prices usually fall.
Energy costs will be high, even with cheaper crude. War-risk insurance, rerouting, and naval escorts through Hormuz add $20 to $30 to every barrel of Gulf crude. Diesel will stay tight while Ukrainian drone strikes keep about 30% of Russia’s refining capacity disrupted. U.S. crude still costs about $30 more than it did a year ago, and Saudi Arabia put part of its October output into storage instead of on the market.
Electricity rates are the next inflation risk, and the midterms changed who oversees them in Texas and Georgia. Texas Governor-elect Gina Hinojosa wants new data center projects paused until protections for the grid, water supplies and local communities are in place. Georgia Democrats now hold a 3-2 majority on the Public Service Commission, which sets Georgia Power’s rates and approves the utility’s data center expansion.
The U.S.-Iran war can still push oil back above $100. Trump is (for now) opting for a naval blockade without new strikes, and on Thursday he declared that the U.S. no longer needs a deal with Iran and pulled JD Vance off the talks, a week after Vance blamed the war for the Republicans’ midterm losses and days after he wrote to Iran’s security chief, Mohsen Rezaei, proposing direct negotiations. That’s pretty much a status quo that suits Gulf producers pumping near pre-war levels into a falling market. It also leaves Iran watching its oil revenue run toward zero by mid-December. In response, Tehran is refusing to send any enriched uranium abroad, stepping up attacks on tankers around Hormuz and threatening Gulf energy plants, data centers and undersea cables. The Revolutionary Guards say two supertankers carrying more than 4 million barrels were left burning in the Strait this week. Aramco already counts nearly three billion barrels of supply lost to the war, so one hit on a Gulf export terminal would wipe out this autumn’s entire price drop. Trump also has less room to answer escalation with force because the federal spending extension expires on December 11, two days after the Fed meets, and Senate Democrats have vowed to vote against any bill that funds the war.
