JPMorgan: Rising Gas Prices May Keep U.S. Inflation High

JPMorgan Chase economists warned that recent increases in gasoline prices could keep U.S. inflation elevated for longer, potentially slowing the downward path of consumer-price growth and complicating the Federal Reserve’s effort to reach 2% inflation.

The bank’s research team pointed to tighter global oil markets and production decisions by major exporters as factors behind higher motor-fuel costs that pushed retail gasoline prices up in recent weeks. Those higher pump prices feed quickly into headline consumer prices, the analysts wrote.

JPMorgan outlined how fuel costs can spread through the economy. Higher gasoline prices raise the headline Consumer Price Index directly. They also raise producers’ input and shipping expenses, which can be passed on to consumers as higher prices for goods and services. Over time, that pass-through can affect core inflation measures that exclude volatile energy and food items.

Timing of pump-price changes matters because monthly CPI readings can swing when fuel costs jump or fall in a given month. While energy is a volatile component of headline inflation, repeated or prolonged fuel-price spikes make it harder for headline inflation to converge with the Fed’s 2% goal and may alter inflation expectations among households and businesses, the report noted.

On policy, JPMorgan said sustained energy-driven inflation would increase the likelihood that the Federal Reserve keeps policy tighter for longer than markets expect. That outcome could delay reductions in interest rates or lead to a slower pace of easing, depending on how persistent price pressures prove to be.

The bank highlighted the unequal effects of higher pump prices on lower-income households, which spend a larger share of income on gasoline and transportation. Rising fuel bills reduce real income for those households and can shift spending patterns across sectors.

Analysts at the bank emphasized uncertainty in energy markets, citing factors such as production choices by oil-exporting countries, seasonal driving patterns and unplanned refinery outages as drivers that can push gasoline prices up or down quickly. JPMorgan recommended close monitoring of monthly CPI releases and energy-market indicators.

Background: U.S. inflation has eased from the double-digit increases seen during the pandemic and related supply shocks but remains above the Fed’s long-run target in some measures. Energy prices have historically been a major driver of headline inflation swings. The Federal Reserve has signaled it will weigh incoming data when deciding the timing of any rate reductions.