Crude oil price no longer drives inflation expectations

The price of crude oil collapsed from mid-2014 until early this year. That trend coincided with financial market participants' clearly declining inflation expectations, prompting the European Central Bank to make monetary policy even more expansionary.

As the oil price has been exhibiting an upward trend again since February, the question is whether market-based medium-term inflation expectations will trend upward again as well. Evidence so far indicates that this will not happen. So the current oil price trend itself does not provide the ECB with a motive for adjusting monetary policy in the near future.

Crude oil price no longer drives inflation expectations(PDF, 129 KB, non-accessible)