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Oil at these levels could add 0.4 percentage points to inflation

Crude rise breaks the deflationary narrative

The 65% rise in oil prices since mid-February could reverse the narrative on inflation.

Reuters looks at what the rally means for prices and economists say it will add at least a point to inflation by early next year.

Economists at HSBC say prices at these levels would add 0.4 pp to inflation and combined with the run-off of the 0.8 pp drag from the prior oil drop it would add 1.2 pp.

Most central bankers have been careful to look through the downside skews from low oil prices but given their bias towards returning to 'normal' rates, they're likely to act on higher oil.

The downside is that higher oil prices will crimp consumer spending.

This is the best part of the article:

"However, the last couple of years have cast an element of doubt on the economic models on the traditional relationships between oil, growth and inflation.

The consensus view two years ago would have been that a 75 percent decline in oil prices would give a major shot in the arm to consumer spending and overall growth. But that didn't happen, and low oil prices are now equated with sluggish demand and general economic weakness."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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