Energy Inflation is increasing:
Saudi Arabia's massive production cut in 2014 sent oil prices lower, causing a large economic boost to consumer spending. Earlier this month, OPEC reversed course, signing a deal that cut production. This was the primary reason for the latest rally in the oil market. According to Bloomberg, bullish oil bets are currently at a 2-year high.
All of these factors will cause an increase in energy inflation, which may place the Fed in a policy bind. Overall CPI is hovering around 2%: core is 2.1% while overall is 1.7%. But as the chart above shows, energy prices are starting to accelerate, which will push overall CPI closer to the Fed's 2% target.
