April 15, 2021

The ECB forecasts a fall in inflation in the Eurozone in the coming months due to the moderation of oil

The ECB forecasts a fall in inflation in the Eurozone in the coming months due to the moderation of oil


The demand for oil is expected to decrease in 2019 and that inflation in the euro area down the coming months, according to the last one economic bulletin of the European Central Bank (ECB), published today. "Based on current prices of oil futures, it is likely that headline inflation will continue to fall in the coming months," the ECB noted in this publication.

The entity has added that the drop in headline inflation from the peak reached in October 2018 it was, above all, due to energy prices, due to the impact of the fall in oil prices. Year-on-year inflation in the euro area stood at 1.6% in December 2018, compared with 1.9% in November.

The fall in oil prices and the corresponding futures after mid-November was more pronounced than expected, which translates into weaker inflation outlook in the short term.

In an article, Dominic Quint analyzes the recent evolution of oil prices and has considered that "the growth of aggregate oil demand has been more stable in recent years, but it is expected to decrease in 2019 ».

The growing demand in emerging and developing economies was offset by the falling demand in OECD countries (Organization for Economic Cooperation and Development).

Oil price impacts

In another article of the economic bulletin, Mario Porqueddu considers that variations in oil prices have a direct impact on the price of energy and indirect impact on other prices of consumption through the cost and demand channels.

«It is expected that the Increased purchasing power encourages consumption and economic activity in more general terms, exerting upward pressures on these prices, albeit with a certain delay ", added Porqueddu, economist at the ECB.

The inflation expectations they are fundamental in the economic and monetary analysis of the ECB, because its mandate is to maintain price stability in the euro area. The bid factors they have contributed the most to the recent volatility in oil prices, while demand has remained relatively stable.

Brent prices have increased since the summer of 2017 and reached a maximum of $ 86 per barrel at the beginning of October 2018. Subsequently Brent prices have registered a strong correction and by the end of the year they had been reduced by around 40%.


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