Societe Generale Predicts Inflation Surprises Using Oil Price Forecasts
Societe Generale’s analysts are using their crude oil and diesel price forecasts to predict inflation surprises for the US and Eurozone. By analyzing spreads, inventories, and refining cracks, they’ve constructed 12-month price paths for Brent, West Texas Intermediate (WTI), and diesel. The goal is to estimate Consumer Price Index (CPI) surprises ahead of official releases, focusing on energy as a key driver.
The bank’s approach hinges on the idea that oil price fluctuations often lead to inflation surprises. Societe Generale forecasts Brent prices using a proprietary model that ties spreads and inventories, then derives WTI prices by assuming a $5 per barrel discount to Brent. While some readers might question the fixed spread assumption, it simplifies the analysis. Similarly, diesel prices are forecasted by examining refining cracks, assuming a stable relationship between product and crude oil prices.
The next CPI release is expected on October 14. According to Societe Generale’s model, inflation should come in modestly above expectations, with a surprise just below 2 percentage points relative to one-year-ahead forecasts. The bank emphasizes that if their oil price outlook proves accurate, this method could provide early insights into inflation trends without waiting for official data.