Deflating deflation, Reflating Oil and Pumping Productivity

April 22, 2016

 We live in a world of very low inflation around the developed world with central banks seemingly terrified of the prospect of deflation and with good cause. Deflation is just plain ugly for an economy with falling prices deferring expenditure, consumption and investment. The antidote is also difficult and includes the possibility of very low or negative interest rates with a view to stimulate the economy and hopefully get wages and prices to rise (but not by too much as rampant inflation is also not a pretty picture!). Europe, Japan, Denmark, Sweden and Switzerland have joined the negative interest rate club and markets have become obsessed with the oil price. In the past a falling oil price in isolation was seen as a good thing for economies (so simplistically falling oil prices –unless they are falling due to a recession should be good for the stock market except oil stocks) however when it falls too far and the deflation bogey rears its head, markets suddenly and perversely yearn for higher oil prices.

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