Top economist predicts unchanged interest rates
Bank of Ireland's chief economist today predicted the European Central Bank will not increase interest rates in the short term following recent oil price rises.
Writing in the Bank of Ireland Global Markets Economic Bulletin published today, Dr Dan McLaughlin said in contrast to the ECB, the US Federal Reserve is downplaying the growth impact of higher oil prices and has signalled its intension to raise rates in early November.
Commenting on the impact of rising oil prices, Dr McLaughlin said: "Rising fuel costs feed directly into consumer prices, raising inflation and production costs which are ultimately passed on to the end user. This rise in prices reduces real spending power and as a result economic growth.
"As a general rule of thumb a €10 rise in oil prices will reduce growth by 0.5% and add around 0.5% to inflation.
"The decision for both the ECB and the Fed is whether to tighten monetary policy in order to offset higher prices, and as a result to leave interest rates unchanged, or to ease policy in anticipation of weaker economic growth down the line."
