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ECB: ###POV - CRUDE DILEMMA: Collapsing oil prices could complicate the ECB's
2019 outlook, but it would take a bigger drop to have a major impact.
- See charts here: https://tinyurl.com/MNI-OilAndECB
- The ECB's Sep. projections had Brent crude at $71.5 in 2018, $71.7 in 2019,
and $69.0 in 2020 - based on futures prices (at cutoff date two weeks prior).
- Based on current futures, Brent now seen averaging $73.5 in 2018 (higher than
projected), $67.2 in 2019 (8.5% below ECB Sep), and $66.7 in 2020 (0.7% below).
- That may not be enough to move the needle. By comparison, in Q3 when Brent was
up around 50% Y/Y, energy contributed 0.9pp to 2.0% headline HICP.
- ECB Chief Econ Peter Praet on Tuesday, however, reminded that the volatility
in oil prices makes the ECB`s base scenario very difficult to communicate.
- This is especially true with the global economy slowing: a drop in prices
associated with a positive oil supply shock could be construed as positive for
growth and thus core inflation, but not if due to oil demand weakness.
- Going forward, the impact on inflation expectations and 2nd round effects
bears watching - i.e. 5Y breakevens have fallen to 3-month lows in Germany.