Signe Roed-Frederiksen
Danske Bank A/S
The lower oil price will send US headline inflation into negative territory already next month.
Real spending power is getting a substantial boost. Private consumption is set to post the best half-year growth rate since 2003.
On the other hand, investments in the oil and gas extraction industry are set to plunge and will be a drag on GDP growth.
The net impact on US growth from the lower oil price is clearly positive, even with a negative investment scenario.
Core inflation is set to trend lower. A stronger dollar means lower import prices and there are potential second-round effects from the drop in energy costs.
The Fed’s preferred measure of core inflation, the core PCE, is set to move below its comfort zone by mid-year.
In an upcoming paper we will look at the implications for US monetary policy.
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