$50 oil is Goldilocks gift to Janet Yellen

Published Tue, May 17 20162:58 PM EDT

Breakingviews

Swaha Pattanaik

Central bankers such as Janet Yellen , Mario Draghi or Mark Carney should be delighted. A rebound in oil prices towards $50 will make it easier for the heads of the Federal Reserve , European Central Bank and Bank of England to hit their inflation targets. It is to be hoped they don't get lumbered with too much of a good thing. The bounce in energy costs is a relief for rate-setters, who have been struggling to lift inflation from ultra-low levels. For example, British consumer prices rose at an annual rate of 0.3 percent in April, even less than the 0.5 percent reported in March, the UK national statistics office said on May 17. Carney has often blamed past declines in energy prices for missing his 2 percent inflation target. And to be fair, he is hardly the only one unable to counteract the disinflationary impact of oil prices, which slumped by three-quarters between mid-2014 and the beginning of January 2016. Euro zone prices fell 0.2 percent in April compared with a year earlier while the U.S. personal consumption expenditures (PCE) price index rose 0.8 percent year-on-year in March. Somewhat higher oil prices will help push inflation back towards central bankers' targets. Measures of core prices, which strip out more volatile costs such as food and energy, are already firmer than the headline rates. In the UK, the former is four times higher than the latter while U.S. core PCE is rising twice as fast as the headline figure. More from Breakingviews : Pandora investor hits right note with sale push What if oil prices rebound faster and further than expected? True, central bankers could look past temporary spikes in inflation. But any sharp rally in energy costs would eat into households' disposable income and risk weakening domestic demand at a time of slower global growth. This is the last thing Carney needs on top of uncertainty about whether Britain will stay in the European Union. His U.S. and euro zone peers could do without this complication too. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

Janet Yellen, chair of the U.S. Federal Reserve, right, speaks with Mario Draghi, president of the European Central Bank.

Bradley Boner | Bloomberg | Getty Images

The bounce in energy costs is a relief for rate-setters, who have been struggling to lift inflation from ultra-low levels. For example, British consumer prices rose at an annual rate of 0.3 percent in April, even less than the 0.5 percent reported in March, the UK national statistics office said on May 17.