Analyst: Rising Oil Prices Could Become a More Structural Driver of Inflation

According to a report by analysts at First Abu Dhabi Bank, the strength in oil prices has been and will continue to be (at least in the short term) a more structural driver of inflationary pressures. The analysts noted that inflationary pressures have led to a sell-off in interest rates as expectations for central bank rate cuts have faded. Previously, the market expected the Federal Reserve to cut rates two to three times this year, but these expectations have been priced out. LSEG data shows that money markets currently expect US policy rates to remain largely unchanged through 2026, with a very slight bias towards tightening. The market is even pricing in more hawkish rate hike scenarios for the European Central Bank and the Bank of England by the end of this year, with increases of 74 basis points and 56 basis points respectively, "largely a result of imported energy inflation in Europe." (Jin10)