Shifts in inflation rates matter to investors
WHAT comes after the recent inflation? More inflation - but of a less obvious, more subtle sort.
In 2015 and 2016, there was a 75 per cent decline in oil prices. Oil is between 3 per cent and 5 per cent of most countries' consumer price inflation baskets - the headline inflation rate was bound to be affected. The resulting low inflation rate produced a frenzy of media speculation about a deflation threat.
Deflation occurs when lots of prices are falling. The low inflation of 2015 and 2016 was about just one price falling. As soon as the oil price started to behave normally, it was obvious that headline inflation would behave normally.
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