The price of oil has decreased by 24% since the end of May.
The cost of crude oil has decreased significantly throughout the summer. The decrease in cost prompts speculation about whether the unusually rapid increase in consumer prices, or inflation, may finally be leveling down.
The cost of North Sea Brent reference quality crude oil was over USD 123 per barrel at the end of May, but it was only USD 94 per barrel on Tuesday. In other words, the price of crude oil has decreased by 25% since the beginning of June.
“It is obvious that the price of crude oil will play a role in reducing inflation. It appears that the price drop will continue in the fall based on the futures, which reflect the market’s expectations for pricing. It should be mentioned, too, that the cost of electricity has kept rising. It increases the pressure on European inflation “explains Juha Kilponen, director of the monetary policy and research division at the Bank of Finland.
The possibility of recession has increased in various parts of the world, which is a key factor in the price of crude oil. Oil’s price decreases as demand declines and total production declines.
At the end of July, the International Monetary Fund (IMF) issued a warning that a new recession could be looming for the global economy. particularly if Russia ceases entirely supplying natural gas to Europe and inflation picks up more quickly than anticipated.
Rising energy prices are one of the main factors accelerating inflation in the euro area. Consumer energy prices in the euro area increased by 39.7% in July compared to the same month last year.
In the same comparison period, the cost of unprocessed food increased by 11%, industrial goods by 4.5%, and services by 3.7%.
Russia’s actions in Ukraine and the sanctions imposed as a result, which have seriously disrupted the oil supply, have hastened the rise in energy costs. On their own initiative, many Western businesses have likewise ceased purchasing Russian crude oil.
The chief economist of the financial institution Nordea, Wind Birch, does not think that the price of crude oil will be sufficient to contain inflation.
“The issue is that as a result of the rise in the price of crude oil, natural gas and electricity have become more expensive. Therefore, we believe that as high gas and electricity prices trickle down to consumer prices, inflation in the euro region will continue to soar in the near future. Because natural gas is so light, the issue is a little different in Finland.”
Reijo Heiskanen, the finance group’s chief economist, disagrees with the OP.
“I believe it is obvious that the reduced price of crude oil in the euro area will cause inflation to moderate a bit. It has a direct impact on the cost of gasoline and diesel.”
However, Heiskanen emphasizes that there are distinctions among the various states.
“Natural gas, which is currently quite expensive, is used extensively in Germany. However, it has no impact on consumer pricing in Finland. On the other hand, expensive electricity has a direct effect on consumer prices, but a lot depends on how much cheaper crude oil is compared to more expensive electricity.”
Costs to consumers The purchasing power of households decreases as a result of price increases since a given amount of money now buys less products and services than it did previously. High inflation hurts businesses and investors in addition to wage employees.
In an effort to slow down the rate of inflation, the European Central Bank tightened monetary policy by 0.50 percentage points in July. A tightening of monetary policy typically decreases the pace of inflation after six months and takes more than a year to fully take effect.