High oil prices ignite, pushing U.S. inflation toward the 4% threshold!

Why is U.S. inflation still difficult to cool down after oil prices fall back?

U.S. inflation pressures are rapidly intensifying, with Bank of America warning that driven by soaring energy prices, the overall PCE inflation rate in the U.S. will rise sharply in the coming months, approaching a peak of nearly 4%, well above the Federal Reserve’s 2% policy target.

According to a report released by Bank of America Global Research on April 1, economists Stephen Juneau and Shruti Mishra have significantly revised upward their overall PCE inflation forecast. The new forecast path is notably higher than previous estimates, with the peak expected in this quarter (Q2 2026). This revision is directly driven by the bank’s commodities team raising their oil price forecasts, and the rapid transmission of energy prices will be reflected in overall inflation data in the short term.

What worries the market even more is that inflationary pressure is not a fleeting phenomenon. Bank of America points out that even if oil prices fall next year, the overall inflation level will still be about 50 basis points higher than previous forecasts, due to two persistent disruptive factors: first, disruptions in fertilizer supply pushing up food inflation in 2027; second, the long-term issues in the global supply chain. This means the path back to the inflation target will be more convoluted than the market previously expected, directly constraining the Federal Reserve’s timetable for rate cuts.

Disruptions in the supply chain are viewed by Bank of America as the core variable for persistent inflation. The report notes that fertilizer supply disruptions are sticky and will continue to push up food prices; meanwhile, global supply chain issues have not been fundamentally resolved, and their impact on price levels will extend into 2027.

On the economic growth front, Bank of America has also downgraded its first-quarter GDP tracking estimate, now predicting a quarter-on-quarter annualized rate of 2.2%, significantly down from the previous 2.8%, mainly due to weaker-than-expected construction spending. This combination of “slowing growth and high inflation” exacerbates the policy dilemma.