Rising Oil Prices Push U.S. Inflation Higher as Energy Costs Surge 21%

As expected, the double digit surge in oil prices in March caused consumer prices in the US to jump.

March CPI came in at 3.3% on a yearly basis, which is the highest reading since May of 2024, and prices rose 0.9% on a monthly basis, which is the highest reading since June 2022.

While the surge was almost entirely fueled by energy costs and the energy index rose 10.9% in a single month, with gasoline prices leaping.

Over 21%, the largest monthly gasoline increase since the series began in 1967.

Now the IEA calls the ongoing conflict in the Middle East the greatest global energy security challenge in history.

While crude oil rose by over 50% in March and traffic through the Strait of Hormuz has collapsed by up to 95%, and shortages of helium, fertilizer, sulfur, as well as aluminum are stalling production in the semiconductor.

Auto as well as sectors around the globe.

Well joining me this morning to break this down is Jeff Gitterman, Managing Director of Gitterman Asset Management.

Jeff, good morning.

Thank you so much for joining me.

Well, here we are.

We are looking at US markets in the red.

As for equity markets and oil back up, and this has come on the heels of ongoing negotiations between the US and Iran, but no deal was reached between these two nations.

Over the weekend, so tell us about the impact of inflation on the economy.

So we're seeing obviously the biggest hit is gasoline prices.

We're seeing gasoline prices were in the low threes in most of the country before this.

We're in the mid to high 4s already.

We're seeing $9 in parts of California because they import most of their oil.

So we're seeing the challenges already and that number on Friday, that print of 3.3 was really mostly due to gasoline prices, but What it hides is the trickle down effect of gasoline prices being high, which then translates into things like airline tickets and costs and travel.

And then what we're missing too, which you mentioned briefly in your opening statement, was that the Strait of Hormuz isn't just a place where oil goes through, it's a place where sulfur goes through.

It's a place where fertilizer goes through.

Let's just talk about fertilizer for a 2nd.

30% I think of the world's fertilizer goes through the Strait of Hormuz.

We've already had issues because The Russian-Ukraine war around fertilizer.

Our crop yields without fertilizer are like 1/10 of what they are with fertilizer.

We would have an extended closure of the strait where no fertilizer is going through.

We would start to see famines next season in places like India, especially which relies really heavily on fertilizer that's going through that strait.

All this translates into higher food prices.

Helium, which 20% of the world's helium goes through the.

Strait South Korea gets the majority of their helium, I think almost 90% of their helium, through the Strait for their chip manufacturing.

You can't make chips without helium.

So if all of a sudden the chip plants are closing, what becomes of the price of chips?

How does that translate into products?

So we're talking food prices, we're talking travel, we're talking chip and technology cost increases.

On top of gasoline, we will just keep going up the longer the strait is closed.

And just to add fuel to the fire, pun intended, what we don't know yet is all the damage that's occurred in some of the fields in Saudi Arabia and Qatar, and other places, Oman around oil production and natural gas production there.

We really don't have a clear understanding yet.

Some of the talks are that it will take 5 months to 2 to 3 years to rebuild some of that infrastructure.

So are we going to see a long term hangover no matter what happens with the strait on natural gas prices?

And as you highlighted, Jeff, a lot of concerns the longer that this continues in the Middle East and that we have this choke point in the Strait of Hormuz because it's not just energy that we're concerned about.

We're concerned about fertilizer as well as helium and other resources, and we are not as a country here in the US isolated, so we do rely on the transport of a lot of resources, and this earnings season we'll be hearing from the C-suite.

Executives of different companies from different industries, so it will be interesting to see how this conflict is affecting those companies.

But when it comes to the US, I know you and I, we talk about the change in climate and apparently according to NOAA, this hurricane season, the upcoming one is expected to be extreme.

So combine that with what we're seeing in terms of the reduction in fertilizer going into areas of the world.

Here in the US we Other sources for nitrogen-based fertilizer here, but what are the expectations?

What does it mean for the global economy?

I mean we typically, we've written about this many times in the past, we typically see a 2 to 3% inflation increase after an El Nino that's strong.

This looks to be one of the strongest El Nino in decades.

So we're looking at potential crop damage that drives inflation prices.

We're looking at homeowners insurance and auto insurance, which we're already seeing a huge increase in.

ICE has a paper coming out that we're going to actually air on May 4th on this show that goes into the actual impact of homeowners insurance and home prices post natural disasters like fires and hurricanes that have occurred in the US We're seeing dramatic impacts from that paper already on huge increases in insurance and also decreases in home value and home prices.

So we've got, as you know, we've been talking about the underlying effects.

Of inflation due to climate change, especially on food production and food prices, we've seen it in cocoa, we've seen it in coffee, we've seen 5,000% spikes over the years in both of those segments.

So when we get this combined effect of fertilizer not being available and an El Nino, I think we're looking at 5-6% inflation going into the beginning of next year, which is untenable for our current economy and our debt surfacing.

Yes, and speaking of which, I do want to get your take on global central banks, in particular the Federal Reserve.

So this week in the nation's capital, the IMF World Bank spring gathering will be taking place, and I'm sure we'll be hearing from finance leaders.

But when it comes to the US central bank, where do they currently stand?

They need to lower rates because of the deficit.

So we're seeing obviously they're putting someone in to the Fed who they I believe we will be very pro favorable on reducing rates, but when you have this inflation pressure, it's very hard in the light of 3.3%, probably going to low fours by the fourth quarter.

Inflation to actually be saying that we're lowering rates.

What that leads to, you know, is a stagflation scenario, which is a terrible scenario for the economy, probably the worst type of economy that you can have where we have no growth and we have inflation.

When you have no growth, you typically have unemployment rising.

You have inflation.

People are not buying things as fast as they used to.

That adds to the slowing of the economy.

We already were seeing a global slowdown in the economy before this war.

I mean things were kind of in an almost perfect place before the war.

It was slowing a little bit, so some countries were lowering rates.

We were still seeing a lot of economic growth in the US.

All of that has been destroyed because of this conflict.

And finally, before I let you go, I do want to get your take on where investors should be position and given all of this volatility and with uncertainty about how this conflict is going to resolve.

What would you say to investors out there who are wondering where to go?

I mean we are putting out a paper this week about it.

We put out some blogs about it, but the hard assets is the place to be because you're seeing price impacts on those hard assets rare earths, metals, real estate, things that you can own.

Actually do fine in higher inflationary periods, rare earth elements, sustainable infrastructure, water, adaptation and resilience companies that are going to be more and more needed as we go into an El Nino with a much warmer climate and more storms.

These are, we think the safest areas to be in.

You want to potentially avoid tech and the MG 7 right now because we're having problems with chip manufacturing.

All those growth projections for those companies go out the window quickly.

Well Jeff, always great having you on the show.

Thank you so much for joining us as we kick off a new trading week.

Thanks for having me.

Thank you.