Societe Generale analysts have developed a model that uses their Brent, West Texas Intermediate (WTI), and Diesel price forecasts to anticipate forward-looking inflation surprises for the US and Eurozone. By analyzing spreads, inventories, and refining cracks, they have constructed 12-month crude and diesel price paths, which they claim can be used to estimate Consumer Price Index (CPI) surprises well ahead of official releases using an energy-centric framework [1].
The analysts state that most inflation surprises—defined as the gap between realized inflation and one-year-ahead forecasts—can largely be attributed to fluctuations in oil prices. Their methodology involves forecasting Brent prices with a proprietary model linked to spreads and inventories, and deriving WTI prices by applying a fixed $5 per barrel discount to Brent. Diesel price forecasts are then calculated based on recent trends in refining cracks, assuming a stable relationship between product and crude oil prices [1].
Looking ahead, Societe Generale's model predicts that the next CPI release, expected on 14 October, will show a modest upside surprise, coming in just below a 2-percentage point increase relative to one-year-ahead expectations. The analysts emphasize that if their oil price forecasts are accurate, it is possible to estimate CPI surprises well in advance, without waiting for the actual inflation data [1].
CONCLUSION
Societe Generale's analysis suggests that energy price movements, particularly in crude and diesel, are key drivers of inflation surprises. Their model anticipates a modest upside inflation surprise in the upcoming CPI release, highlighting the importance of oil price forecasts for market participants monitoring inflation trends.