The Oil Crisis and the Investment Outlook - June 2008

The ever rising world oil price is now posing a major threat to the economic outlook. The threat to inflation is already apparent and inflation rates in most countries are now running well above yearago levels. It is also leading to higher interest rates than would otherwise be the case in the face of slowing economic growth. The continuing surge in oil will complicate the setting of interest rates in Australia because it’s quite conceivable that the latest spurt in oil and petrol prices will push headline inflation up to 5%. But more importantly at a time of weak economic conditions is the “tax” on consumer spending that higher oil prices are creating.