Weekly Economic Briefing

One size fits oil?

20 January 2015

Global Overview

  • Optimal central bank responses to falling oil prices vary according to local macroeconomic conditions.
  • The Fed is facing a quandary; delay policy tightening in response to weak headline inflation pressures or look through the inflation shock with an eye on the tightening labour market. The Bank of England (BoE) appears to have made up its mind by signalling a later move is on the cards.
  • Lower oil prices against a backdrop of already excessively low inflation partly explain why the ECB is about to embark on its own QE programme. The Bank of Japan (BoJ) headed down this road last year, although opinions are divided on which turn the Bank will take next.
  • Emerging markets are divided; the winners from lower oil prices are capitalising on lower inflation by lowering rates. India’s unexpectedly early rate cut exemplifies this, but structural weaknesses may be only temporarily masked.
  • Hands are being forced in Brazil, Russia and Venezuela as stubbornly high inflation drives rate hikes in spite of weak economic performance. Brazil, in particular, will be watching Fed policy moves with bated breath.


Disappointing core retail sales and inflation will weigh on FOMC members’ minds next week. However, sentiment indicators and strong labour data tell a more positive story. What will the Fed be most swayed by?



UK inflation is down to a record low and falling. The BoE is now expected to wait until Q4 to start adjusting policy, although this delay could trigger a more pronounced tightening next year.



Prices are falling in the Eurozone as the effect of the oil shock starts to feed through. The ECB looks set to respond with sovereign bond purchases, but programme design will be critical.



The BoJ’s ability to fulfil its pledge of ‘2% inflation in two years’ is increasingly in question. However, judging the Bank’s response to weaker price trends is complicated.


Emerging Markets

Collapsing oil prices are allowing high-inflation countries to rapidly alter their policies, allowing some, such as India, to cut earlier than planned. Central bankers should proceed with caution, though, as structural bottlenecks remain.


Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

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