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Press Release

Cleveland Fed researchers examine impact of oil price declines on inflation outlook

Oil prices have declined significantly in recent weeks, reaching levels not seen in several years. Will the low oil prices keep inflation persistently low?

Using inflation nowcasts produced by the Federal Reserve Bank of Cleveland, Bank researchers Ben Craig and Sara Millington gauge the impact of recent oil price changes on the near-term inflation outlook. They find that declining oil prices decrease nowcasts for headline CPI and headline PCE, while core CPI and PCE, which are isolated from direct energy swings, remain steady at around 1.5 percent.

The Cleveland Fed’s daily nowcasts provide forecasts of the current period’s rate of inflation before the official data are released.  To learn more, watch this 4-minute video or go to Inflation Nowcasting.

Craig and Millington say the volatile nature of energy prices makes it difficult to say how recent oil price movements will impact the longer-term outlook for inflation. The two most likely channels through which oil price changes can impact inflation are through retail gasoline prices and producer prices. However, the researchers note that, as consumers use savings from lower energy prices to purchase other goods and services, the prices of those other goods and services are likely to rise, offsetting the initial disinflationary impact of lower oil prices.

The researchers also point out that the inflation rate over the longer run is primarily determined by monetary policy, rather than by movements in individual price components.

Read The Effect of Oil Price Declines on Consumer Prices.

And for all things inflation, visit Inflation Central.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479