The fall in oil prices and other commodities – such as copper, which on Monday hit a six-month low – will be welcomed by central bankers confronting increasing inflationary pressures and slower growth.
The central banks of the US, eurozone and UK meet this week to consider interest rate policy in the face of slowing growth and rising inflation, caused in part by soaring oil prices.
Further evidence of rising inflationary pressure came in data released on Monday in both the US and Europe. However, the US Federal Reserve, which meets today, and the European Central Bank and Bank of England, which meet on Thursday, are all expected to keep rates on hold.
In New York, West Texas Intermediate oil futures plunged more than $5 to an intraday low of $119.50 a barrel, sending the Reuters-Jefferies CRB index, a global commodities benchmark, to its lowest in since early May.
Some traders also expressed doubts about the strength of Chinese oil consumption, long seen as the main cause of higher prices, saying it had been artificially boosted by stockpiling ahead of the Olympics.
Higher supplies from Opec, mainly thanks to Saudi Arabia’s boosting its oil production to the highest level in more than 25 years, pushed prices down.
The fall in oil prices saw the dollar recoup early losses against the euro and extend its gains against the pound and the yen,
In the US, the closely watched core personal consumption expenditure index – a key gauge of inflation – rose by 0.3 per cent, more than expected by economists. On an annual basis it rose by 2.3 per cent, which is above the Fed’s comfort level.
In the eurozone, prices for products leaving the factory gate rose by an annual 8 per cent in June, a new high for the nine-year-old currency bloc that could yet surge along the value chain and boost record consumer-price inflation.
Eurostat, the European Union’s statistics office, said producer-price rises in June grew by 0.9 points from an annualised 7.1 per cent in May, adding to fears the European Central Bank could raise rates in autumn.