Time to review some of our favorite lead indicators on how high inflation will go. These stats point in different directions, but for the next six months, inflation is likely to remain above the 2% Fed target, which doesn’t argue for an immediate lower federal funds rate.

The 10 Year Treasury

The rate had been falling in the months before Iran, but has risen from 4.0% to 4.46% since then.  This is a 50 basis point higher interest rate the federal government pays on its debt today and suggests investors are getting more nervous about the outcome in the Middle East.

Gold Price

Very little reaction to the Iran conflict. The gold price hit $5,000 but has actually fallen since then to $4,700. That isn’t a sign of a burst of dollar decline.

TIPS Spread

The TIPS Spread measures the market’s expectation of inflation in the future. That rate bottomed out around 2.2% and has now risen to 2.5% suggesting slightly more investor pessimism on holding down inflation.

Commodities

This looks ugly. The index of two dozen commodities – from coal to copper to cotton to, of course, oil – shows a big spike in prices since the Iran conflict began. The index reached a low of 380 in February and has risen to 514 today. That’s a 35% rise in less than three months, which signals more inflation ahead.

Oil Price Futures

The predictions for oil prices have been creeping up. The price of oil for 2027 is now estimated at $80 a barrel, which is the equivalent of about $4.25 a gallon gas. But that is down from roughly $101 per barrel today. Remember the oil price was below $70 three months ago.

Market Oil Price Predictions