Be careful with the correlation for model input purposes. We posted this snippet rather than the more interesting #2 to show some of the current considerations. As Platts makes clear oil will do what oil will do and I wouldn't bet on U.S. inflation dropping to the Fed's 2% target for months and on a ttm basis not until 2023 at the earliest.
From S&P Global Platts, December 6:
Uncertainties on the potential impact of the omicron variant continues to grip markets this week. Our editors also keep an eye on oil prices after OPEC+ decided to stick to its planned production increase in January, the correlation between implied inflation and energy prices, and China's steel demand.
.... 3. Weaker implied inflation corroborates weaker energy pricing
What's happening? There's a strong correlation between implied inflation—measured as the difference between US nominal interest rates and inflation protected rates—and energy. Implied inflation, on a 10-year basis, has fallen from 2.76% on Nov 15, to about 2.45% most recently. Energy commodities, as measured by the GSCI energy subindex—composed of crude and refined products as well as US natural gas prices—have fallen 21% from its peak Oct. 26.
What's next? Whether actual inflation metrics ease remains to be seen, while the US Federal Reserve has begun to taper its asset purchases and is likely to begin raising interest rates sometime in mid-2022. If the economic momentum softens due to the spread of the omicron variant, while the Fed is directionally less accommodative in its monetary policy, inflation may indeed fall and corroborate the decline in implied inflation. Energy ultimately trades on its own fundamentals, though it can take guidance from the broader macro trends, including implied inflation. Winter weather remains a key driver. Weather in the US, while currently warm, will inevitably turn seasonal at some point, with brief colder-than-normal spells likely too and gas markets would again quickly tighten. For oil, the degree of demand destruction set into motion from the previous peak in prices, along with the threat of the new COVID-19 variant remains key, though stock levels are likely to stabilize, or modestly build into Q1. As such, the energy commodity subindex should stabilize, while implied inflation could also stabilize if inflation pressures show prospects of abating....
....MUCH MORE
