DTN Oil

WASHINGTON (DTN) -- As the U.S. dollar bounced off a five-session selloff in reaction to Tuesday's hot inflation report, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell as investors reassessed their bets on how aggressive the Federal Open Market Committee would be in raising interest rates at their Sept. 20-21 meeting to bring inflation under control.

Bureau of Labor Statistics confirmed Tuesday morning the U.S. economy has a serious inflation problem that is quickly broadening beyond the scope of energy and transitory items. Americans are now paying more for almost everything and falling gasoline prices alone cannot ease the pressure from rising costs for clothes, rents, and medical services. Core prices, which exclude volatile food and energy items and are typically seen as a better gauge of underlying price pressures, rose a notable 0.6% in August -- double their 0.3% increase seen in July.

"Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one," tweeted former U.S. Treasury Secretary Lawrence Summers, an outspoken critic of how the Federal Reserve has handled inflation.

Last year, price increases appeared to have been driven by a handful of items such as used cars and airfare that could be tied to the reopening of the economy from the pandemic lockdowns and supply chain challenges those lockdowns exacerbated. Once inflation took hold, price pressures expanded into the energy complex, boosting costs for gasoline, natural gas, and electricity. August's inflation reading showed, however, that price pressures are quickly broadening into food and shelter even as the energy component of inflation is slowing.

The acceleration in inflation strengthens the case for the Federal Reserve to lift the federal funds rate by at least 75 basis points at next week's meeting and raises the prospect of hefty increases continuing in coming months. Fed officials had suggested they were prepared to make their third consecutive 75-basis-point increase at this month's meeting even if inflation had cooled in August, as many economists had anticipated.

Following the data's release, the U.S. dollar index, which has an inverse relationship with WTI futures, bounced off a 1 1/2-week low to settle the session at 109.809, up 1.4%.

October WTI, the U.S. crude benchmark, declined $0.47 to settle at $87.31 per barrel (bbl). On ICE, November Brent futures fell $0.83 to $93.17 per bbl.

The risk higher interest rates could tip the U.S. economy into recession pressured ULSD futures, which correlates closely with the economy's performance. NYMEX October ULSD futures plummeted 6.18 cents to $3.5413 per gallon. Meanwhile, the prospect of a national rail strike that could upend ethanol deliveries underpinned the gasoline contract, with NYMEX October RBOB futures adding 3.56 cents on the session with a $2.4804-per-gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com