MUFG said an IEA-coordinated oil reserve release could temporarily offset supply disruption in the Strait of Hormuz, while market attention turns towards US inflation. The February US CPI release is due today, with price effects from the attack expected to appear more clearly in next month’s data. Consensus forecasts point to headline CPI rising 0.3% month-on-month, up from 0.2%, while core CPI is expected at 0.2%, down 0.1 percentage points. Annual rates are forecast to stay at 2.4% for headline and 2.5% for core. Energy is expected to transmit the shock fastest, with the AAA national daily average petrol price up 18% in March to date through 9 March. That takes it to the highest level since July 2024. Energy’s weight in headline CPI was 6.38% as of December. A scenario with Nymex crude at USD 100 per barrel in Q1–Q2, then back to USD 70 by year-end, implies energy CPI could peak at 15–20% by mid-year. Under that scenario, headline CPI could rise by about 1.0 percentage point, assuming smaller increases in natural gas prices. US year-on-year energy CPI in Q4 was -20%. We are again focused on how an energy shock could drive inflation, much like the situation we saw around this time in 2025 following the Strait of Hormuz conflict. With Brent crude futures recently breaking above $95 per barrel due to renewed maritime tensions, the market is on edge. The potential for a coordinated reserve release is being discussed, but its impact may be temporary. All eyes are on the upcoming US CPI data for February 2026, which will be critical in shaping the Federal Reserve’s next move. Early indications suggest a hotter-than-expected print, with some economists forecasting a 0.4% month-over-month rise in the headline number. This would be a significant acceleration and challenge the narrative of disinflation. We must remember the lesson from last year when a similar situation unfolded. In March 2025, we saw US gasoline prices surge by 18% in just the first nine days of the month. This pass-through from energy prices ultimately added nearly a full percentage point to headline CPI by the middle of that year. The current situation is developing rapidly, as the national average for gasoline is already up 10% so far this March. If oil prices remain elevated near $100 per barrel through the second quarter, we could see energy CPI once again peak in the 15-20% year-over-year range. This presents a clear upside risk to inflation forecasts for the coming months. Traders should consider positioning for increased volatility and persistent inflation. The CBOE Volatility Index (VIX) has already climbed to over 18, reflecting rising uncertainty. Options strategies on energy futures and inflation swaps could offer a direct way to hedge or speculate on these unfolding price pressures. This environment also calls for a close watch on interest rate derivatives, as a sticky, energy-driven CPI could force the Fed to delay any planned rate cuts. This implies opportunities in trades that benefit from a stronger US dollar. It would also be prudent to look at downside protection on major equity indices, as sustained high energy prices could dampen economic growth.

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