Oil Prices and Inflation Expectations

Oil Prices and Inflation Expectations

Inflation can be a hope for the economy but if it is not controlled then it can be bad consequences. But in this article do not discuss the adverse effects of uncontrolled inflation.

Many already know that, the main source of inflation is the price of oil. In theory, if oil prices fall then inflation will go down and affect the whole world. Conversely, oil prices rise then inflationary pressures will also rise.

The last few months or years, it appears that the price of oil fell aggressively. From values ​​over $ 100 to $ 30 and currently in the $ 45- $ 50 range. In a matter of months, inflation has fallen dramatically in several major economies across the country.

The decline in inflation has reached negative levels in most countries. In the eurozone itself, already experienced deflation ie negative inflation (below zero). The central bank has only one way to deal with such conditions as cutting interest rates and conducting monetary policy violations.

The European Central Bank, the ECB, does so by cutting interest rates to negative areas. And also do the bond purchase program as a form of policy of monetary violation. Until now, the bond purchase program is still running. While inflation has increased slightly and is below the central bank’s target (2%).

Traders in trading forex are always looking for clues what the next central bank will do. The most influential on traders are: interest rates and monetary policy changes.

Inflation or CPI is one of the data releases that the central bank considers in deciding its interest rate policy. The trader will review the CPI data and the central bank’s decision position. This is a part of fundamental analysis in forex trading. And inflation is the most important economic news to know.

Forex traders will mark or remember the CPI release schedule on the economic calendar. When CPI data is released for the UK, Eurozone, Japan, the United States, Australia or New Zealand, it will definitely increase price fluctuations.

If it is important for the economy then the greater the expected fluctuations. If the actual figures released differ from market forecasts, the greater the fluctuation.

When forex traders want to find clues about interest rates in the future then traders should see CPI numbers. Because that’s what’s important for the central bank.

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