Rising Oil Price - Is Inflationary Pressure Coming Now?

After the attacks on oil production facilities in Saudi Arabia, the price of oil has risen significantly. The price quotation for the North Sea variety Brent rose very abruptly from just under 60 US dollars to just over 65 US dollars. This corresponds to a historically strong increase of more than eight percent within one day. In the longer term, however, the rise and the current level of the oil price are less worrying.

There have been much stronger oil price movements in recent years. Between summer 2017 and autumn 2018, the oil price rose by more than 70 percent to over 80 US dollars. Although this caused the German inflation rate to rise above the 2 percent mark for a short time, the rate of inflation returned to normal quite quickly thereafter.

Can inflation in the euro zone and Germany be expected to rise noticeably as a result of the rise in prices? Rather not. Compared to the previous year, when the oil price was around 78 US dollars, gasoline and heating oil are still being dampened at the current edge. Therefore even a durable oil price rise to 65 US Dollar would let the inflation rise in Germany in the coming year only around approximately 0.1 per cent points. Instead of 1.5 per cent it would then amount to 1.6 per cent. The situation for the euro zone as a whole is not much different. Here our inflation forecast for 2020 would increase from 1.3 to 1.4 percent.

The only restrained price pressure from the oil price is also explained by the relatively low weight of consumer prices. Overall, energy goods in the shopping basket of the Harmonized Index of Consumer Prices (HICP) account for around 10 percent for EMU. The share for petrol, diesel and heating oil is around 5 percent lower, about the same as in Germany.

In addition, Germany is only comparatively very slightly dependent on direct oil imports from Saudi Arabia. According to estimates by the German Petroleum Industry Association (MWV), only around one percent of imports recently came from Saudi Arabia. Even if production in Saudi Arabia were to remain restricted for a longer period of time, there would be no acute supply bottleneck.

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