In a recent blog post from DB's Francis Yared, the credit strategist looks at one of the lesser discussed drivers of inflation and points out that supply shocks to oil prices have historically been relevant for inflation expectations.
As Yared writes, "supply shock to oil prices have had a significant impact on inflation expectations on three occasions over the past half century: in the mid 70s, the mid 80s and the mid 10s." However, unlike the infamous price explosions of the 70s and 80s, in the latest episode the "shale oil revolution" resulted in a significant positive supply shock to oil markets which led OPEC in 2014 to defend its market share rather than oil prices. The downward pressure on oil prices, Yared writes, resulted in a shift to a lower inflation regime, which was reflected in both consumer and market inflation expectations (University of Michigan 5-10y and 5y5y breakevens) as well as monetary policy expectations and the term premium.