Takeaway

The presenter argues that persistent downstream energy price pressure presents a material risk to the US disinflation trend. Based on historical parallels, the speaker believes that sustained high gasoline and diesel prices—which have been over 30% above their two-year average for six straight months—are likely to feed into core CPI, complicating the Federal Reserve's policy path and potentially forcing more aggressive action.

What the presenter said

• The Fed's reaction function suggests more work will be needed if sufficient progress on inflation is not seen. [00:04]
• The current energy inflation problem is downstream, caused by disruptions getting crude to US refiners, rather than a crude oil shortage. [00:21]
• As of August 2026, downstream energy prices (RBOB and ULSD average) are approximately 51% above their prior two-year norm. [00:47]
• This pressure has remained over 30% above its benchmark for six consecutive months, a persistent signal. [00:56]
• Historical analysis of four similar episodes shows that in three of them, the average monthly pace of core CPI was higher over the following six months. [01:43]
• Short-term core inflation momentum (3-month annualised) was higher three months later in all four prior episodes. [01:55]
• Current core inflation is coming off a low base (1.64% 3-month annualised pace), so a return to 0.25%-0.30% monthly prints would represent a meaningful reacceleration. [02:03, 02:08]
• Unfavourable base effects from soft monthly prints rolling out of the annual calculation will make further disinflation difficult. [02:17]
• The presenter questions whether the two or three hikes priced by the market will be sufficient to curb inflation, given that much borrowing is now done further out the yield curve. [02:43]

Trade ideas

• None stated. The presenter's market view is that while the market pricing of just over two Fed hikes seems directionally correct, it may not be enough to achieve the Fed's inflation goals.

Levels and data cited

• WTI crude: +16% relative to its prior 24-month average.
• RBOB gasoline: +40% relative to its prior 24-month average.
• ULSD diesel: +62% relative to its prior 24-month average.
• Downstream energy pressure (RBOB & ULSD avg): +51% vs prior 2-year norm as of August 2026.
• Latest 3-month average core CPI (m/m): 0.14% (1.64% annualised).
• Latest 6-month average core CPI (m/m): 0.20% (2.42% annualised).
• Official annual core CPI y/y (July 2026): 2.5%.
• Monthly core CPI print rolling off (June 2027): -0.018%.

Risks and what would invalidate this

• Persistent downstream energy pressure feeding through to core CPI, causing a reacceleration of inflation.
• Softer monthly CPI prints from the previous year rolling out of the annual calculation, making further disinflation difficult even with moderate monthly prints.
• The currently projected two or three Federal Reserve rate hikes may prove insufficient to achieve the desired disinflation, potentially requiring more aggressive tightening.