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Oil drop stirs deflation fears in advanced economies

FXStreet (Mumbai) - The recent slide of more than 25% in Crude prices has triggered fears of deflation in the advanced economies.

In the past, a similar price fall was considered positive across the world. The global dynamics since 2008 recession have shaped up in such a way that the advanced economies are battling the threat of falling inflation at a time when the emerging economies are working hard to control inflationary pressures.

Yesterday, the U.K. reported the slowest inflation in five years while in Sweden prices fell for a second month. The Eurozone is likely to report tomorrow a weakest inflation number since 2009. The European Central Bank (ECB) president Draghi has already blamed the falling energy prices for the slowing inflation in the Eurozone. Bank of America economist Gustavo Reis says, “A persistent decline in energy and agriculture costs would put a significant downward pressure on headline inflation”.

Among the advanced economies, Japan is likely to benefit from a slump in oil prices. As per Bank of Japan Governor Haruhiko Kuroda , “Japan imports massive amounts of oil so falling oil prices is a plus for the economy,”

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