Oil explains about 60% of the variation in 10-year breakeven inflation year to date:
That is what we would expect to observe. As noted on the scatter chart, today’s observation for 10-year breakeven inflation is relatively low for a $54 value WTI oil price.
In fact, the residuals of the regression of 10-year breakeven inflation vs. oil appear to describe a downward trend:
The presence of a downward trend is confirmed by including a trend variable in the regression of oil on breakeven inflation:
There are many possible explanations for the deflationary trend net of oil, including technological improvement, changes in the composition of the labor force, and so forth.