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The fall in the oil price is broadly reflected across the current situation in the global economy and the outlook for the future.

Euro area inflation has long been below the European Central Bank’s objective for price stability and has continued to slow in recent months. This has given rise to heightened concerns that the euro area could soon be facing a prolonged period of deflation, as recently in Japan.

Central banks have acted forcefully to provide monetary accommodation. With little room for manoeuvre for standard interest rate policy, unconventional measures have been adopted.

The Russian economy has begun to contract due to the fall in the price of oil. GDP will contract by over 4% in 2015. The uncertainty will cause a decline in investment, and consumption will be cut particularly by rapid inflation. Imports will be reduced by the contracting economy, a weak rouble and declining export income.

The decision by the ECB Governing Council to ease monetary policy through an expanded asset purchase programme will boost demand and accelerate inflation via a number of different channels.

There is increased uncertainty surrounding the growth and inflation forecasts, yet this time upside risks are also present.

As a result of the prolonged period of exceptionally weak price developments, the ECB’s price stability objective began to lose its role as a solid anchor to price formation in the euro area.