It’s inflation week in the US.

If you ask me, risks around updates on the BLS’s CPI metrics and the BEA’s PCE measures are mostly one-sided in the sense that warm readouts would be insult to injury in the context of crude prices approaching $100, while benign prints would be dismissed as old news given the data was collected before the war.

The PCE data’s very old news: It covers January. Economists expect to hear underlying price growth on the Fed’s preferred measure ran 0.4% that month, while consensus is looking for a downshift to a 0.2% monthly pace on core CPI.

As a reminder: The BLS measure printed an as-expected 0.3% monthly advance for January in the last release, but the report was accompanied by a pronounced overshoot on the so-called “supercore” metric (not shown in the chart) that the Fed closely monitors.

With the caveat that post-pandemic seasonality may explain the January CPI supercore overshoot, there’s some risk of a repeat in Wednesday’s report, and although I suppose you could argue the jump in gas prices could paradoxically be constructive if it curbs excess demand for services, that blurs the line between making lemonade of lemons and Pollyannaism.

The releases which, again, cover different months, are due on different days. As noted, CPI’s up first on Wednesday. PCE prices are due Friday alongside the second estimate of Q4 US GDP.

As far as monetary policy’s concerned, the big question is whether the Fed’s willing to look through elevated headline inflation catalyzed by an oil supply shock. That willingness will be tested the longer the war drags on.

As discussed in the Weekly, oil to $100 and beyond will push up breakevens and between a concurrent rise in reals and a selloff at the front-end (particularly in Europe), markets are pricing a hawkish read-across.

The figure above gives you a sense of how rattled traders are. Oil vol spikes of that magnitude are conducive to inflation uncertainty, which in turn risks an uptick in rates vol.

“[A] quirk of the post-shutdown calendar [means] February’s CPI figures are being released in advance of the January core-PCE update [and] as a result, a benign CPI print on Wednesday will likely serve to temper core-PCE, which is currently anticipated to print at +0.4%,” BMO’s Ian Lyngen remarked, adding that although “recent Fed rhetoric has left the onus for the resumption of policy rate normalization squarely on the shoulders of the incoming inflation data and forward inflation expectations, a key caveat is that for any shift in the fundamentals to truly translate into durable price action [in rates], we’d need to see either a de-escalation in the Mideast or a de-emphasis by investors of the inflationary risks stemming from the geopolitical landscape.”

Neither of those two prerequisites (i.e., a quick war de-escalation or a de-emphasis on the inflation read-across from the spike in oil) are on the cards this week, with the usual proviso that, as Trump himself puts is, “nobody knows what I’m going to do.”

US oil rose the most in the history of the modern futures market last week, and gas prices are up 15% since the start of the war. If you extrapolate and assume the low-end of Trump’s “four- to five-week” time line for the Iran operation, gas prices in America could be up more than 50% by this time next month. For any other US president, that’d be a total non-starter in an election year, but this isn’t any other US president, so who knows.

Also on offer this week in the US: Spending data for January (accompanying Friday’s PCE prices update), JOLTS for January (also on Friday), existing home sales (seen showing a decline for February in an update due Tuesday) and new construction data (covering January, due Thursday).

Oh, and the first read on University of Michigan sentiment for March is due Friday. That release could give markets a sense of how excited (or, more to the point, not) beleaguered American families are about the prospect of another Mideast quagmire.

In the same note cited above, BMO’s Lyngen offered a helpful reminder. “The unpredictable nature of armed conflict doesn’t lend itself to high-conviction macro positions held for short time horizons,” he said. “But it does bode well for a tactical approach of fading extremes that are triggered by geopolitical events.”