The collapse in oil prices may only be a few months old, but economists are already debating its long-term effects: will the world be gripped in growth-sapping Japanese-style deflation or will the world economy benefit from a period of lower prices?
Deflation is classed as when consumer prices turn negative with the theory being that buyers would hold off from making purchases in the hope of further falls. This raises the fear of a prolonged deflationary spiral with the slump becoming so entrenched that it impacts growth and does little for the potential of wage increases.
The price of oil has seen a dramatic 40 percent fall since June and has weighed on headline inflation figures and is likely to continue to do so next year.
Consultancy Capital Economics estimate that the energy component of inflation in advanced economies will fall temporarily to around minus 10 percent next year. Some consumers see little price reductions at the pump as their governments subsidize the commodity, but in the U.S. many have been cheering the drop in oil which has put more money in their pocket.
Bill Blain, a fixed income strategist at Mint Partners argues that lower oil prices does not necessarily translate into growth, however.
"Oil price declines are initially hailed as positive growth drivers – but in an already recessionary environment, perhaps they have become a soporific too far?," he said in a morning note on Friday.
"I am just not perceiving the global economy on the verge of a boom...the risks look to the downside – especially as the effects of lower oil are factored in."
Consumer prices in November rose 0.3 percent for the euro zone, compared to the year before, and the European Central Bank has regularly downgraded its prospects for the next year as 2015 approaches. In the U.S., annual inflation still remains below the 2 percent goal given by the Federal Reserve. The Bank of England is expecting the U.K.'s inflation rate to fall below 1 percent next year and China's number currently sits at a five-year low.