Article • Dean Baker’s Beat the Press
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I’m glad to see that Paul Krugman has the same story about falling oil prices, inflation, and real interest rates as me. He pointed out that to the extent that falling oil prices reduce the overall rate of inflation it should not matter for real interest rates. What matters for the real interest rate is the expected rate of inflation for goods and services in general. Lower oil prices will matter for energy investment, but not for the vast majority of goods and services in the economy.
I made this point a couple of months back, although probably many times before that as well.