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.

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