Certainly, an oil price shock improves the terms of trade, increases households’ real disposable income and reduces the input costs for firms, thus boosting aggregate demand. But if inflation expectations become de-anchored and second round effects set in, then the sign of the effect can change. What is initially a positive supply shock can morph into a negative demand shock.
This is first of all because at the zero lower bound falling inflation implies rising real interest rates, causing households to postpone consumption and firms to delay investment, which can then feedback into still lower inflation. In fact, when we took our decision expected real rates had risen by almost half a percentage point in the previous few months alone.