Oil Prices, Global Demand Expectations, and Near-Term Global Inflation

Abstract

Oil prices have increased by nearly 60 percent since the summer of 2020, coinciding with an upward trend in global inflation. If higher oil prices are the result of constrained supply, then this could pose some stagflation risks to the growth outlook—a concern reflected in a June Financial Times article, “Why OPEC Matters.” In this post, we utilize the demand and supply decomposition from the New York Fed’s Oil Price Dynamics Report to argue that most of the oil price increase over the past year or so has reflected improving global demand expectations. We then illustrate what these changing global demand expectations might mean for near-term global inflation developments.

Citation

Groen, J. J. J. and A. I. Noble (2021), “Oil Prices, Global Demand Expectations, and Near-Term Global Inflation” Liberty Street Economics, October 04 2021, Federal Reserve Bank of New York.