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Flash: Crude contraction threatens to initiate specter of deflation – UBS

FXstreet.com (Barcelona) - According to the UBS Research Team, “In the United States, the risk of deflation would be compounded if oil prices fell.”

Apart from the Federal Reserve, all other major central banks are targeting measures of inflation that include energy prices. This year oil prices have traded in a tight $86-96 for West Texas.

However, if oil follows other commodity prices lower over the next few months – for example because of increased US shale production or slower growth in China – then it would cause target inflation rates to decline across the advanced economies with the exception of America. “This would put pressure on central banks aside from the Fed to ease monetary policy further.” warns the team.

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