Inflation: Is There a Hidden Destiny Behind It?

(Source: BFC Hui Tan)

Slowly, high oil prices are beginning to resemble the oil crisis of the 1970s, and the shape of the US CPI is also gradually taking on a 70s-like appearance. Could it be that there is some divine providence at work?

Will inflation rise? It is very likely that inflation will rebound. Although commodities in the non-ferrous metals sector have increased for a year in 2025, their impact on the US CPI and PPI has been limited. This is mainly because the US relies heavily on imports for industrial manufactured goods, with a small proportion produced domestically, so the rise in raw materials like copper and aluminum has little effect. However, the rise in crude oil prices is a different story—after all, the US is a car-dependent country. Calculations show that since the beginning of the year, the increase in crude oil prices has boosted the US CPI by about 1.3% and the PPI by about 3.5%, far more than the rise in copper and aluminum prices.

What does this calculation imply? It suggests that if the oil price center remains between $90 and $100, then the US CPI will likely exceed 3% in the future.

On the other hand, although the trend of rising inflation is certain, its elasticity and magnitude are still subject to discussion. Some signs indicate that this round of US inflation will not simply replicate that of the 1970s. For example, the real estate cycle is notably different—during the 1970s, the US was in a population expansion phase with rental vacancy rates around 5%, creating a perfect environment for rent inflation. Currently, the US rental vacancy rate is 7.2%, above pre-pandemic levels, and trending upward, naturally suppressing rent inflation.

Initially, excluding oil price shocks, the endogenous inflation in the US was tending to slow down. Recent official CPI data have been uneventful (2.4% in February), indicating that domestic inflation is actually easing, which is the Federal Reserve’s main basis for cutting interest rates. But, coincidentally, the military adventurism of the “Smartest Man in the Room” has encountered stiff resistance, and now it’s a situation of riding a tiger—rising oil prices could completely wipe out the rate-cutting cycle…

On one side, weak employment, and on the other, inflation driven by high oil prices—this is the most uncomfortable scenario for the Federal Reserve.

To summarize today’s insights:

1. High oil prices are gradually echoing the oil crisis of the 1970s, and the shape of the US CPI is also slowly taking on a 70s-like appearance. Is there some divine plan behind this?

2. Will inflation rise? It is very likely. The impact of rising crude oil prices on the US CPI far exceeds that of commodities in the non-ferrous metals sector. Calculations show that if the oil price center remains between $90 and $100, the US CPI will likely exceed 3% in the future.

3. Originally, excluding oil shocks, domestic inflation in the US was tending to slow down, including rent inflation. But, coincidentally, the military adventurism of the “Smartest Man in the Room” has encountered stiff resistance, and now it’s a situation of riding a tiger. The most uncomfortable scenario for the Federal Reserve has arrived.