The plunge in oil prices to a five-year low might represent a boon for consumers, but for the European Central Bank, not so much.
"When is good economic news a reason to worry?" writes
New York Times columnist Neil Irwin. "When you’re a central banker fighting a slump toward deflation, or broadly falling prices, in a time that oil prices are plummeting."
That's the predicament facing ECB President Mario Draghi. "How he wrestles with that problem will help determine the outlook for Europe’s flailing economy," Irwin says.
Annual eurozone inflation totaled only 0.3 percent in November, down from 0.4 percent in October. And annualized economic growth for the region registered just 0.6 percent in the third quarter.
The drop in oil prices makes it more difficult for the ECB to reach its 2 percent inflation target.
"Oil prices go up and down — there's nothing you can do about it — but when they do, it doesn’t tell you much about the longer-term path of inflation. Central bankers should keep looking over the horizon and focusing on the medium term."
But there is a plus side, Irwin writes. He cites comments from New York Federal Reserve President Bill Dudley that lower oil prices may force Europe and Japan to act more forcefully to boost their economies. And that would help the whole world.
U.S. January oil futures traded at $65.26 a barrel Friday morning, after hitting a five-year low of $63.72 last Friday.
For the U.S. economy, the price move is all good,
CNBC contributor Larry Kudlow told Newsmax TV. "This is a gigantic tax cut for the American economy," he said on the "Steve Malzberg Show."
"It's not a marginal tax rate reduction, I'm just saying it has the same impact. People will have much more disposable income to spend on other goods and services, and . . . businesses need this."
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