Rising crude oil prices may lead to higher inflation in eurozone

The Dollar Business Bureau

A European Central Bank survey said on Friday that rising crude oil prices will translate into higher inflation in the eurozone over the next two years.

According to the ECB's quarterly survey, eurozone inflation is slated to rise 1.4% in 2017 and 1.5% next year, up from a previous estimate of 1.2% and 1.4%.

"These upward revisions largely reflect the increase in the price of oil," the survey said.

On Thursday, ECB president Mario Draghi had said it was still too early for the bank to start scaling back its easy money policies despite a recent spike in consumer prices.

The forecasters predicted inflation to hit 1.6%. Meanwhile, banks have felt the urge to undertake necessary policy stimulus after the eurozone inflation nearly doubled to 1.1% in December.

The ECB has taken unprecedented effort to drive up economic growth and manage inflation in the region by extending cheap loans to banks, providing ultra-low interest rates and undertake a massive bond-buying programme.

The Frankfurt-based institution also said that it expects the core inflation to reach just 1.1% in 2017 before climbing slightly to 1.3% and 1.5% in 2018 and 2019.

Global oil prices have witnessed a rebound following an agreement between OPEC and non-OPEC oil producing countries on reducing oil production. Since then, crude prices have oscillated around $50 a barrel.

In last November, Saudi Arabia and Iran at OPEC meeting in Vienna agreed to cut down 1.2 million barrels a day from global oil output, leading to an uprise in crude oil prices. The prices are expected to shoot further in the near future if Saudi Arabia and Iran continue their production cut pledges.

The US oil production also declined in 2016 but expected to increase significantly this year. If the oil production does go up, then it will give a different dimension to the global oil prices.

Last year, around the same time, the global crude oil prices were hovering around $30 per barrel. This January, the prices have gone up to $55-56 per barrel.