Suppose we get a durable resumption of reopening of the Strait. Oil prices will likely stay elevated for some time (resumption of normal conditions maybe 3-4 months, oil-wise). Assuming the current Cleveland Nowcast for April CPI is correct, what will inflation have to be for the rest of the year to hit pre-War trend?

Figure 1: CPI all urban, April observation Cleveland Fed nowcast of 4/17 (bold black, left log scale), 2025-26M02 stochastic trend (light gray, left log scale); PCE deflator, March observation Cleveland Fed  nowcast of 4/17 (dark red, right log scale), 2025-26M02 stochastic trend (light red, right log scale). Source: CPI, BEA via FRED, Cleveland Fed, and author’s calculations.

A m/m annualized inflation rate of 1.5% for May through December would restore the CPI level to the 2025M01-26M02 stochastic trend. For comparison, headline inflation (calculated in log terms) was 2.4% as of February.