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ECONOMIC NEWS
François Dupuis, Vice-President and Chief Economist Mathieu D’Anjou, Senior Economist • Benoit P. Durocher, Senior Economist • Francis Généreux, Senior Economist • Hendrix Vachon, Senior Economist
Desjardins, Economic Studies: 514-281-2336 or 1 866-866-7000, ext. 5552336 • [email protected] • desjardins.com/economics
NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2017, Desjardins Group. All rights reserved.
Rising Oil Prices Should Boost InflationAfter a surge last year, oil prices had a disappointing first half of 2017. The West Texas Intermediate (WTI) price dropped from US$54 per barrel at the end of 2016 to around US$45 in June 2017. This decline in oil prices is one of the factors that limited inflationary pressures around the world despite strong economic growth.
However, in the last few weeks, oil prices have risen significantly. This is due to several factors, including favourable economic conditions, a drop in U.S. crude inventories and growing tensions in the Middle East. The WTI price recently climbed to $US58 per barrel while the Brent price per barrel got close to the US$65 mark. These increases suggest that gasoline prices will remain higher than those observed over the summer. The recent upsurge in prices seems quick, and an additional increase would be surprising as it could spur a response by oil producers. However, given the favourable economic climate, it seems reasonable to expect oil prices to hover near current levels in the coming months.
IMPLICATIONS
The recent rise in oil prices is one more reason to count on inflation picking up. If oil prices remain at their current level, they will post an annual change of about 30% by the middle of next year. The gasoline component of the consumer price index will likely push up inflation rates in several economies in the next few months. This may reassure central bankers, who are concerned about inflation having remained below their target level for too long, and encourage them to pursue normalization of their monetary policy.
Mathieu D’Anjou, CFA, Senior Economist
ECONOMIC STUDIES | NOVEMBER 27, 2017
GRAPH 1 Rising crude oil prices keep gasoline prices high even as the impacts of hurricanes fade
*Average of Brent and WTI (West Texas Intermediate) prices. Sources: Datastream and Desjardins, Economic Studies
US$/barrel
1.50
1.80
2.10
2.40
2.70
3.00
25303540455055606570
2015 2016 2017
Crude oil prices* (left) Gas prices in the United States (right)
US$/gallon
Hurricanes
GRAPH 2 The annual change in oil prices should be very positive in the coming months
WTI: West Texas Intermediate; * Assuming oil prices remain constant. Sources: Datastream and Desjardins, Economic Studies
US$/barrel
-80
-60
-40
-20
0
20
40
60
80
25
30
35
40
45
50
55
60
65
2015 2016 2017 2018
Level (left) Annual variation (right)
In %
Average Brent and WTI prices
Forecasts*
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