Falling oil prices may no longer be a straightforward positive for inflation, according to Apollo chief economist Torsten Sløk. The market narrative is shifting from viewing cheaper crude as disinflationary to seeing it as a demand booster in an already overheating economy, which could ultimately push inflation higher. Since the April CPI report, Brent and WTI crude have slid below $70, but the 2-year US Treasury yield has not followed oil lower, breaking their prior correlation. Sløk warns that the reopening of the Strait of Hormuz could further overheat the economy, forcing the Federal Reserve to raise interest rates soon. The latest PCE inflation reading, due Thursday, is expected to show core PCE ticking up to 3.4% in May, well above the Fed's 2% target.
Apollo Global Management LLC Class AApollo's chief economist warns lower oil prices could overheat economy, forcing Fed rate hikes, which may affect Apollo's business indirectly.