Oil could be setting an inflation time bomb for autumn

With oil prices back above $73 a barrel, anyone who regularly fills a gas tank has to be hoping that this isn’t the start of a new surge.

Carl Weinberg, chief economist at High Frequency Economics, says there’s a reason beyond the personal pocketbook issue to worry about another jump in oil prices: The effect on inflation gauges worldwide.
If the price stays at $73 or goes higher, and gasoline follows suit, energy prices will begin to put upward pressure on the CPI by October.

“While the pass-through of higher oil prices into consumer prices may be less than 100%, no one should treat the risk of a substantial increase in perceived inflation by year-end as anything but a serious threat to both consumer demand and to economic growth,” Weinberg wrote in a report this week.

He worries that, if financial markets believe that inflation is gaining traction, long-term interest rates could rise sharply, threatening to abort any economic recovery.

Los Angeles Times