The decline of oil in response to falling manufacturing figures from China will continue to pressure the Consumer Price Index down. The price of natural gas has also fallen. This is good news for consumers. The CPI went negative 0.4% in April.
The Median CPI, which is less volatile than the CPI, went up by 0.2% in April. It has risen 0.1% in March. So, there are offsetting signals.
The energy sector is a good proxy for the international economy. Rising energy prices reflect growing demand due to a growing economy. Falling energy prices indicate a slowdown in the world economy.
Oil is the single most important international commodity. The world consumes a billion barrels every 12 days. It is the foundation of the world’s economy. There are few oil reserves. So, at the margin, the price of oil is determined mainly by demand. The supply does not change week to week. Producers are maxed out, or close to it, at all times. So, a decline in price reflects falling demand, which in turn represents economic slowdown.
Three Asian stock markets have been down in recent days: the Asian Dow, the Japanese Nikkei, and the Hang Seng.
China’s manufacturing slowdown is an indicator of falling demand worldwide. China is the world’s major manufacturer-exporter. The purchasing managers’ index (PMI) fell below 50 to 49.6 in May. The figure of 50 is neutral on growth.