It’s The Oil, Stupid

One obvious takeaway there is that because, as DB goes on to write, “a positive supply shock does not generate self-reinforcing dynamics of weaker growth and lower inflation,” the downward pressure on inflation expectations could evaporate quickly. But the real kicker from the note excerpted above is the following chart which certainly seems to suggest that oil’s impact on inflation expectations has served to enable ECB easing:

ECBCrude

So you know, you can look at this one of two ways in the context of the recent rise in crude prices: 1) it will provide the impetus for central banks to finally move forward with normalization thereby replenishing their ammo for the next downturn, or 2) it will catch central banks behind the curve and force them to tighten more aggressively than the market anticipates thereby accelerating the timetable on that same inevitable downturn.

Those two points are not mutually exclusive.

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Gary Anderson 2 years ago Contributor's comment

You are assuming labor is strong. But what if labor is weak? What if capitalism is weakening the wealth of the labor force? I don't see that discussed at all.

The Heisenberg Report 2 years ago Author's comment

that isn't relevant to this discussion and it assumes nothing of the sort.

on the bright side, if you want to read about that topic, I can point you to one of the best bloggers on the internet who writes beautifully on late stage capitalism. check this out: https://notesfromdisgraceland.wordpress.com/

Gary Anderson 2 years ago Contributor's comment

How can DB say this: “a positive supply shock does not generate self-reinforcing dynamics of weaker growth and lower inflation,”? Wasn't the Great Recession based upon the decline of asset values, both in oil and in housing?

Thanks for the link, by the way.