Oil: Reflation trade could face a few more headwinds - ANZ

In view of the analysts at ANZ, this latest retracement in oil prices (WTI has fallen 12% this month alone) is coming at an interesting time and if because of that central banks start to lose faith in meeting inflation targets once again, the ‘reflation trade’ could face a few more headwinds.

Key Quotes

“The recovery in oil prices over 2016 was obviously a big factor lifting headline inflation rates and inflation expectations globally. However, the peak impact on inflation of this earlier oil price move is arguably occurring about now, and so it is quite possible that headline inflation rates start to tail-off again. Now markets may choose to look through that and instead focus on the better activity data evident and even the ongoing potential of fiscal stimulus. But if central banks start to lose faith in meeting inflation targets once gain (at a time when core inflation and wage growth is still subdued in many parts of the world), the ‘reflation trade’ could face a few more headwinds.”