Oil shock raises deflationary spectre again

A global oil shock will deliver only a glancing blow to inflation and leave Group of Seven central bankers far more worried about slowing growth than higher prices, analysts say.

Top financial leaders warned this week of the dangers from crude oil costs, up 50 percent the past year and holding firmly above $50 a barrel the past month.

The International Monetary Fund said further gains would deliver a serious blow to global growth while European Central Bank President Jean-Claude Trichet said an oil shock is “very unwelcome.”

But analysts said the spectre of crude oil prices triggering an inflationary spiral akin to that of the 1970s is outdated.

The greater danger for slow-growing economies such as Japan and the euro zone could be recession and deflation.
reuters