Dropping Egg, Oil and Other Prices Could Get Inflation Below 2.0% in the Summer

The Bureau of Labor and Statistics reported that the consumer price index (CPI) for both all-items and core increased 0.2% in February, slightly below expectations. On an annual basis, headline inflation was at 2.8%, while core was at 3.1%. Both also were 0.1 percentage point below the Wall Street consensus and the previous month’s levels. Here we will cover the falling prices and projecting what can happen by this summer.

If inflation is under control below 2.0% then this would free the Federal Reserve to lower interest rates. The Ten year treasuries are already down to 4.2% (down 0.6% or so) and continue to trend down. Ten year treasuries could be at 3.5% in the summer.

If the Fed Funds Rate is 4.0%:
30-Year Mortgage Rate: 5.5% to 5.8%

15-Year Mortgage Rate: 4.8% to 5.1%

Car Loan Rate (5-Year): 5.8% to 6.2%

If the Fed Funds Rate is 3.75%:
30-Year Mortgage Rate: 5.3% to 5.6%

15-Year Mortgage Rate: 4.6% to 4.9%

Car Loan Rate (5-Year): 5.6% to 6.0%

Truflation takes millions of realtime pricing measures while the BLS has about a 3-8 week lag on tens of thousand of prices. Truflation is ahead of the BLS CPI. Truflation last reported 2.8% inflation in January, 2025

The USDA reported egg inventory has increased by about 4%.

Eggprices.org report egg prices nationwide are down to $5.51 a dozen from a peak of $8.17.

There were a series of cullings of chickens for bird flu (total of 150 million killed with about 44 million in the last batch). The chicken being grown to replace those killed are maturing at different stages for the different cullings. If there were not another bird flu mass culling then full recovery of chicken populations would be about May to July.

At $5.51 per dozen in March 2025, that’s roughly a 53% YoY increase from January 2024’s $3.60/dozen. If prices return to normal by May-June, assume they drop to a pre-shock level of ~$3.00-$3.50/dozen. This 35-45% decline over 2-3 months would significantly reduce the food-at-home CPI sub-index, which weighs ~8% of the total CPI. A rough calculation suggests a 0.2-0.3 percentage point (ppt) drop in headline CPI from this alone, given eggs’ outsized role in recent food inflation.

Food and Energy prices are in regular CPI but not in Core CPI.

Ukraine Peace Deal Impact on CPI

What is the impact if there is a Ukraine peace deal? Russian and Ukraine produce a lot of fertilizer. Russia produces a lot of natural gas and oil. There is a ceasefire being discussed with Russia and Ukraine.

The CPI could fall to approximately 1.5% to 2.0% YoY by May-June 2025. This assumes the peace deal and price drops materialize fully by then, with no offsetting pressures (e.g., demand spikes or new supply shocks). Core CPI might lag higher (2.5-3.0%) due to sticky shelter/services costs, but headline CPI would reflect these deflationary inputs.

Dropping inflation below 2.0% is huge for the Federal Reserve to reduce interest rates. However, the federal reserve usually focuses on the Producer Price Index.

Estimating the CPI
Starting Point: Jan 2025 CPI at 2.9% YoY.

Reductions:
Egg prices normalizing: -0.2 to -0.3 ppt

Natural gas/wheat: -0.2 to -0.4 ppt

Corn/meat/dairy: -0.1 to -0.3 ppt

Oil/energy: -0.3 to -0.5 ppt

Shelter (interest rate lag): -0.0 to -0.1 ppt

Total Impact: -0.8 to -1.6 ppt

Projected CPI (May-June 2025): 1.3% to 2.1% YoY

Ukraine Peace Deal Impacting Natural Gas, Fertilizer, and Wheat

Natural Gas: A peace deal could normalize Russian exports, currently constrained by sanctions. European natural gas prices spiked in 2022-2023 but have softened; U.S. prices were $4.17/million BTUs in January 2025. Increased Russian supply could lower global prices by 20-30%, potentially dropping U.S. prices to ~$3.00-$3.50/million BTUs. This reduces energy costs (6-7% of CPI), though U.S. reliance on domestic gas mutes the effect—say a 0.1-0.2 ppt CPI reduction.

Fertilizer: Lower natural gas prices (a key input) and restored Russian/Ukrainian supply could cut fertilizer costs by 25-40% from 2022 peaks. This doesn’t directly affect CPI but lowers agricultural input costs.

Wheat: Increased Russian/Ukrainian wheat exports could drop global prices 10-20% from current highs (~$6.50-$7.50/bushel in 2025 forecasts). U.S. wheat prices might follow, reducing cereal/bakery prices (part of food-at-home), contributing another 0.1-0.2 ppt CPI decline.

Lower Corn Prices from Cheaper Fertilizer:
Corn prices are ~$5.50-$6.00/bushel in early 2025. A 25-40% fertilizer cost drop could reduce production costs, potentially lowering corn prices to $4.50-$5.00/bushel (a 15-20% decline). Corn feeds livestock (meat, milk) and affects processed foods. Meat/dairy prices (13% of CPI) might fall 5-10% over months, shaving 0.1-0.3 ppt off CPI as supply chains adjust.

Oil Prices at $55-60 per Barrel:
Oil is $71.37/barrel (WTI) as of February 2025. A drop to $55-60/barrel (15-25% decline) due to peace-deal supply boosts would lower gasoline prices (~$3.50/gallon now) by ~$0.50-$0.75/gallon. Energy’s 6-7% CPI weight suggests a 0.3-0.5 ppt direct reduction. Indirectly, cheaper transportation costs could further dampen goods prices.

Interest Rates Down 50 Basis Points by July:
A 50 bps cut (e.g., from 4.75% to 4.25%) by July signals Fed confidence in cooling inflation. This doesn’t directly hit CPI by May-June but could ease shelter costs (33% of CPI) slightly via lower mortgage rates, maybe a 0.1 ppt effect by mid-2025 as rents lag.