Charts of the Week: Oil in the Price

The Blue Chip Growth Consensus The latest Blue Chip survey of economic forecasters revealed heightened optimism about the US economy in the year ahead but lingering pessimism about the outlook for several other major economies. The consensus forecast for US GDP growth in 2024 now stands at 2.4%, up from 2.3% in the March survey, and up more sharply from a low of 0.7% in the July survey from last year. GDP growth forecasts for Japan, the euro area and the UK, however, now respectively stand at 0.6%, 0.5% and 0.3%, little-changed from March, and much lower than where they stood last July (see chart 1).

The Blue Chip Inflation Consensus The evolution of US and European inflation forecasts for 2024 have equally now started to decouple from one another (chart 2). The consensus forecast for CPI inflation in the US, for example, now stands at 2.9%, up from 2.8% in March and compares with a low point of 2.3% in January 2023. Inflation forecasts for 2024 for the euro area and the UK, in contrast, now stand at respectively 2.3% and 2.4% and have, on the whole, drifted down from their highs reached in October last year.

Oil prices and inflation surprises With oil prices climbing in recent weeks there are arguably some upside risks to the global inflation outlook in the period ahead. The positive surprises in this week’s US CPI data for March, for example, can partly be traced to a bigger contribution from energy prices. But, as chart 3 below equally suggests, inflation surprises more generally are typically accompanied by large energy price swings. That’s partly because energy prices are a critical element of most companies’ costs.

Oil prices and global growth Another reason, however, why energy price swings often generate inflation surprises is because they can be symptomatic of broader demand shifts in the world economy. To be sure, oil prices have been climbing in recent week for a number of reasons, including escalating tensions in the Middle East, and particularly due to the Israel-Hamas war. But it is arguably no surprise either that prices have been rising at the same time as incoming global growth data have surprised on the upside (chart 4). A positive demand shock, in other words, is another reason why oil prices have spiked higher.

The global business cycle This week’s sentix surveys of investor sentiment certainly chime with the idea that global growth is perking up. All of the forward-looking expectations components in the April surveys for Asia, the euro area and the US were in positive territory, and for the first time since February 2022 (chart 5). Synchronized shifts of this nature would ordinarily coincide with an upswing in the global business cycle.

Euro area bank lending conditions Finally, this week’s latest ECB bank lending survey arguably suggests that monetary policy in the euro area remains quite restrictive. Banks reported a further substantial decrease in demand for corporate lending and a small decline in demand for housing loans (chart 6). As has been the case in recent quarters, higher interest rates coupled with lower fixed investment plans and weak consumer confidence are exerting downward pressure on the demand for lending.