The continued fall in oil price and what looks like a supermarket price war, means that it is expected that there will be continued downward pressure on UK inflation. The newspapers have been awash with stories of deflation, which may be seen as a positive for savers, however there are wider economic consequences that are not good.
The Eurozone continues to be the biggest economic concern with deflation being a major threat. There is increasing speculation of the possibility that Greece will have to exit the Eurozone.
Attention is now being focused upon the ECB’s meeting on the 22nd January where details of a Quantitative Easing programme will be provided.
Given the relative strength of the US economy, the Euro has depreciated against the dollar and economists believe there will be further depreciation.
The Federal Reserve Bank expressed concern about the health of the global economy last week as a significant risk to the US. However there is expectation that central bank policy makers abroad will be taking the necessary steps to introduce growth inducing measures. The US, which as a result of the resurgence in their oil industry is a main contributor to the fall in global oil prices, is also experiencing downward inflationary pressure, well below the Fed’s target of 2%.
Despite what may seem to be quite a pessimistic view coming from the US central bank, there are other indicators suggesting a positive outlook for the US. Employment figures, business confidence and an anticipated increase in consumer spending, because of the savings made in energy prices, could be very good for the US.