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“Nevertheless ... there are substantial risks on both sides around that with probabilities of very high oil prices but also probabilities of much lower oil prices,” he said. Crude oil prices held above $63 (P346.50)a barrel on Wednesday, pinned near their record high by lingering threat of attacks in Saudi Arabia, tensions over Iran’s nuclear programme and refinery outages in the United States. King said it was a mistake to assume climbing oil prices would necessarily result in lower British interest rates though he admitted inflation may push above the Bank of England’s 2.0 percent target as a result.
“If the world economy was strong ... that has implications for interest rates which may be rather different from those who think that higher oil prices always mean lower interest rates,” King said.
“So far there is no sign that the rise that we have seen in oil prices ... has led to any movement of inflation expectations.
“In the next few months one would expect, because of the more recent oil price increases, inflation may well rise above target, not dramatically so,” he said.
“I don’t think there is any simple response.” (Reuters)
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