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Fed researchers are asking if this chart means the market thinks oil prices will stay low forever

Myles Udland   

Fed researchers are asking if this chart means the market thinks oil prices will stay low forever

Will oil prices stay low forever?

In a new post, researchers at the St. Louis Fed ask if this chart - comparing inflation expectations in 5 years with the price of crude oil - means the market thinks the drop in oil prices is permanent.

fredgraph (5)

FRED

Michael Owyang and Hannah Shell of the St. Louis Fed write:

While oil prices can pass through and affect other prices, the almost one-to-one movements in the two series seem to be unusual. Pass-through from oil to other prices is incomplete. If the price increase in oil was deemed to be temporary, the 5-year inflation rate would not move in unison with oil prices (little pass-through). In this case, it appears there's at least some belief that the change in oil prices will persist, as there is substantial pass-through.

In her latest press conference, Fed chair Janet Yellen said she expects the impact to inflation from oil prices will be transitory.

But this chart seems to be telling a different story.

(via The FRED Blog)

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