High oil prices ignite, U.S. inflation surges toward the 4% threshold!

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Inflationary pressures in the United States are rising sharply. Bank of America warns that driven by soaring energy prices, the overall U.S. PCE inflation rate will climb rapidly in the coming months, peaking near 4%, far exceeding the Federal Reserve’s 2% policy target.

According to Wind Chasing Trading Desk, a report released on April 1 by Bank of America Global Research shows that economists Stephen Juneau and Shruti Mishra have significantly raised their overall PCE inflation forecast. The new projected path is notably higher than before, with the peak expected to occur this quarter (Q2 2026). This revision comes directly from the bank’s commodities team’s upward adjustment of oil price forecasts. The rapid pass-through effect of energy prices will be concentrated in overall inflation data in the short term.

What is more concerning to the market is that inflationary pressure is not just a flash in the pan. Bank of America points out that even if oil prices fall back next year, overall inflation will still be about 50 basis points higher than previously forecast, due to two persistent disturbance factors: first, the disruption of fertilizer supply will push up food inflation in 2027; second, the long-term nature of global supply chain problems. This means that the path back to the inflation target will be more tortuous than previously expected by the market, imposing a direct constraint on the Federal Reserve’s rate cut timeline.

Bank of America sees supply chain disruptions as the core variable in inflation persistence. The report notes that fertilizer supply interruptions are sticky and will continue to drive up food prices; meanwhile, fundamental resolution of global supply chain issues has yet to occur, and their impact on price levels will persist until 2027.

In terms of economic growth, Bank of America has also lowered its Q1 GDP tracking estimate to an annualized rate of 2.2%, down significantly from the previous 2.8%, mainly due to construction spending coming in below expectations. This combination of “slowing growth and high inflation” intensifies the policy dilemma.

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The above highlights are from Wind Chasing Trading Desk.

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