Home > Data, Inflation > Oil: The Supply Shock Which Isn’t There

Oil: The Supply Shock Which Isn’t There

Carney on supply shocks at the Financial Stability Report yesterday when asked a question about “oil price risk and deflation risk”:

Mark Carney: Yeah. The – in terms of oil, I mean, this is a net positive development. I went through some of the channels of risk in my remarks – geopolitical, uncertain high yield issuers and then this deflation point, which I’ll expand on.

But I think we should be clear that the 40% plus drop in the oil price will flow quite quickly through to consumers; it will increase real disposable income; it’s a net positive for the UK economy. And the relative exposure – the relative exposure – of the UK financial system to the energy complex is manageable. And so unambiguously – net positive.

I asked this before but I’ll ask it again.  Who is upgrading their forecast for UK real GDP growth in the light of falling oil prices?  The Treasury’s helpful comparison of independent forecasts came out today, and that upgrade is not showing up yet.

HM Treasury Comparison of Forecasts, December 2014, p11

HM Treasury Comparison of Forecasts, December 2014, p11

Categories: Data, Inflation
  1. W. Peden
    December 18, 2014 at 07:30

    Which means (given the fall in inflation expectations) that there’s an average forecast of a monetary tightening, which is a shame given that monetary policy is finally on track.

  2. W. Peden
    December 18, 2014 at 07:32

    Though looking at your other post from yesterday, perhaps the forecast average is being a misleading indicator.

    • December 18, 2014 at 09:36

      Yes, I am not sure how to read the data here. Maybe there is some reason why the gilt-market-implied inflation expectations are not a reliable indicator right now.

  3. W. Peden
    December 18, 2014 at 07:38

    Also, the UK has average 2.01% NGDP growth from 2008 onwards. No wonder we have space for low-inflation expansion! 2% is roughly long-term stable prices for the UK, so there is certainly room for >6% NGDP growth for a few years. Only the old fallacy of using unemployment as a macroeconomic indicator could convince people otherwise.

  4. W. Peden
    December 18, 2014 at 07:40

    Actually, worse than that, because normal unemployment figures don’t tell you about hours worked, tax credits etc. One of the good things to come out ot the Lucas/Prescott/Kydland literature was the idea that unemployment rates have no major role to play in macroeconomics, even if what you’re interested in is unemployment!

  1. January 15, 2015 at 12:50

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