Oil prices affect nearly everything in the economy. Transportation costs, manufacturing, heating, the price of goods on store shelves. When oil rises, businesses face higher costs, and those costs tend to get passed along to consumers. Markets know this, which is why inflation expectations often move in tandem with energy prices.
The chart above shows this relationship over the past four years. During the 2022 energy price surge, both oil and inflation expectations climbed together. As oil prices normalized through 2023 and into 2024, inflation expectations came down as well. The pattern is not perfect, but the relationship is clear.
When supply is disrupted and prices rise, inflation expectations tend to follow. This is the relationship playing out in real time.
The current conflict involving Iran and disruptions to shipping through the Strait of Hormuz have brought renewed attention to this dynamic. Oil prices have swung across a wide range as the situation has evolved, with WTI moving from around $60 in January to above $90 in March.[1] The International Energy Agency has noted supply disruptions, and IEA member countries agreed in March to make emergency reserves available to help stabilize markets.[2]
The U.S. Energy Information Administration forecasts that prices may remain elevated in the near term before potentially easing later in the year, though they note this outlook depends heavily on how the situation develops.[3] The Federal Reserve has described inflation as "somewhat elevated" and has indicated they will remain patient.
What does this mean for families thinking about their financial plans? Higher energy costs work their way through the economy over time. For those in or approaching retirement, understanding how inflation affects purchasing power is part of building a plan that holds up through different market environments.
That's the thinking behind this chart. We want to provide context for the conversations many families are having right now about what all of this means for their plans. If you have questions about how current events might affect your financial picture, we're always happy to talk it through.