Oil’s return above the $100-a-barrel mark pushed Wall Street lower on Wednesday, as the intensifying US-Iran conflict raised fresh concerns over fuel costs and inflation.Brent crude, the international benchmark, climbed 3.3% to $101.18 a barrel, crossing $100 for the first time since July. The move came after the US destroyed five Iranian tankers on Tuesday in a series of attacks between the two countries.The conflict, which began in February, has effectively brought traffic through the Strait of Hormuz to a halt. Before the war, the waterway carried a fifth of the world’s oil supply.The rise in crude weighed on major US indices. The S&P 500 fell 37.04 points, or 0.48%, to 7,636.48. The Nasdaq declined 185.765 points, or 0.70%, to 26,235.647. The Dow Jones Industrial Average dropped 389.86 points, or 0.74%, to 52,396.21.The decline was widespread, with retailers among the companies pulling the market lower. Amazon fell 1.8%, while Starbucks lost 1.5%. Nearly every sector of the S&P 500 was down. Oil companies, however, moved in the opposite direction, with Exxon Mobil gaining 1.9% and Chevron rising 1.6%.
Fuel costs add to inflation pressure
The latest jump in oil prices has added to inflationary pressure that had already been running high. US petrol prices are now about 32% above their level a year ago, at $4.22 a gallon.For households, higher petrol prices directly increase the cost of driving. They can also raise the prices of goods as businesses face higher shipping costs.Diesel prices have added to the pressure. Diesel, which is widely used in shipping and production, reached an all-time high on Friday and has continued to climb. Its average price reached $5.94 a gallon overnight, 9 cents higher than on Friday.Inflation was already proving stubborn before the US began its war against Iran, amid the continuing US trade war with much of the world. Trade tensions have also intensified, particularly between the US and Canada, a close US ally and trade partner.
Investors await fresh inflation data
The focus will now turn to this week’s inflation readings. Thursday’s Producer Price Index for August will provide an indication of the prices businesses pay for goods before they reach consumers. The Consumer Price Index for August, due on Friday, will give a more direct picture of price pressures facing households.The latest reports are expected to show inflation remaining above 3%. That is still above the Federal Reserve’s 2% target.The Fed has kept interest rates steady, but markets are increasingly factoring in a possible rate increase next week. Wall Street is pricing in a 60% chance of a hike at the central bank’s meeting, according to CME Group data.Higher interest rates make borrowing more expensive and are used to slow economic activity and bring inflation down.In the bond market, treasury yields were little changed. The 10-year Treasury yield edged up to 4.81% from 4.80% on Tuesday.
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