Bundesbank may cut inflation forecast due to oil price

Germany's Bundesbank said on Monday it would have to cut its 2015 inflation forecast if recent declines in oil prices are sustained.

Just 10 days after releasing updated inflation and growth forecasts, the Bundesbank said the Brent crude prices had since fallen 11 per cent on average below the forecast assumptions.

“Such a reduction in the price of crude oil points towards a downward revision of the inflation forecast and an upward revision of the forecast for GDP growth,” the German central bank said, presenting its monthly report.

“If the low crude oil prices continue, the projection for the HICP (inflation) rate for the coming year would have to be adjusted downwards by 0.4 per centage points,” it said.

The latest Bundesbank projections point to inflation of 1.1 per cent in 2015.

ECB policymakers are debating whether to take fresh action to combat the threat of deflation in the euro zone, where inflation is running at 0.3 per cent - far below the ECB’s target of just under 2 per cent.

A Reuters poll of economists showed growing worries that plunging oil prices may send the euro zone into a deflationary spiral, which could push the ECB to buy sovereign debt early next year.

Reuters