Chart of the Week: Is the Decline in Oil Prices Renewing Deflationary Concerns?

Chart of the Week: Is the Decline in Oil Prices Renewing Deflationary Concerns?

inflation expectations

As oil prices continue their near 40% decline over the past few months and the global economy remains weak, inflationary expectations are beginning to experience their biggest decline since the 2008 recession. Does this mean it is time to worry about deflation? Not necessarily. According to a study by the Cleveland Fed, although oil prices can help explain short-term CPI movements, they do not help forecast core CPI inflation. Though pairing declining oil prices with a weak global economy can be a cause of concern, these factors do not outshine the current stability in core inflation and recent positive employment numbers that push back deflationary pressures. Also, this particular drop in oil prices is being influenced more so by the increase in supply as opposed to the decrease in global demand, making it more unlikely to be a contributing cause to deflation.

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