Finally, the current decline in inflation rates as a result of the recent oil price movements, in effect, means that inflation outcomes in a year’s time will be subject to strong adverse base effects. The policy challenge is to ascertain the future path of oil price developments – this is a formidable task!
It is uncertain whether the lower price levels that we are currently experiencing are transitory or permanent. Put differently, could oil prices increase again as quickly as they went down? While there seems to be consensus that we would not return to the most recent peaks, unfortunately, these questions do not lend themselves to easy and clear answers.