But should we be celebrating? The jury's out on whether falling prices will encourage more spending now, thus delivering a boost to the economy, or postpone expenditure in anticipation of even lower prices in the future. Certainly the experience of many UK retailers over Christmas suggests that whilst they're not battening down the hatches shoppers are hardly splashing the cash, either.
Nor is there any certainty that cheap oil is here to stay. Sure, its price has halved in a little over three months (although fuel duty of course means the price at the UK pump has not) and continues to fall. But given the problem is largely a supply and demand imbalance, the situation could easily reverse before the year is out. In commodity markets it’s often said that nothing cures high prices like high prices, as supply is increased in response – if so, the reverse must hold true, too.
Whatever the case, the current thinking is that the falling oil price and its effect on inflation means interest rate rises have been postponed for now – in fact Mark Carney has pretty much said so. Which means one group will certainly not be celebrating: the nation’s savers. And even if homeowners may see continued low rates as a boon, a more circumspect view such as our economist Chris Dillow's on page 16 is that the benefit is lessened by the absence of inflation chipping slowly away at mortgage debt.
That’s something would be buy-to-let investors need to be mindful of, especially those that may be taking on the mantle of landlord for the first time as they unlock their pension pots when new rules come into effect in April. Along with other income generating assets, house prices might continue to rise as a result of cheap money – but rising asset prices force those hunting for yield to take greater risks, too. And as the prop of low rates is eventually removed, prices might reverse.
Of course, we can’t know what tomorrow has in store – and as Chris also points out in this week’s cover feature, our ability to predict is highly questionable, even if cognitive biases sometimes convince us otherwise. Indeed, six months ago few foresaw a fall in the oil price; interest rate rises were unquestionably on the way, too, as the ever flattening trajectory of the yield curve we show on our stats page demonstrates. But the very best investors, like those we discuss on page 28, are those that understand that not being able to divine the future is just one of their many human limitations. And at a time of heightening volatility self doubt is a good starting point.
