#Oil price effect on #stagflation, #inflation and #deflation

Completely wrong conclusion by WSJ  experts that falling oil prices will pump up deflationary fears which will further negatively affect demand through expectations and curb the effectiveness of quantitative easing.  Having to mention that OIL is on the supply side. It’s effect on supply through cost is much higher that on demand.  We must be very careful in order to distinguish inflation who derived from demand side with the cost inflation which is the main driver of stagflation. Some demand effect through the economic dynamics will be through the balance of payment of oil producing nations (as already estimated by IMF) but will be more that offset by cost reduction in oil consuming countries.  Caution need to be given on the effect of revenue reduction in E&P companies and their dropping equity value along with their bonds and how all this effect the exchanges.  Finally,  Russia tries to break even with Asia while its wellhead cost is much lower that current levels.  Norwegian companies will have significant losses but they break even with the high gas prices that prevail in continental Europe.

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