Journal Article

Have rising oil prices become a greater threat to price stability?

Abstract: The effect of oil prices on inflation has varied greatly in the last 50 years. Rising oil prices in the 1970s and early 1980s were associated with high and rising inflation. In the late 1980s and 1990s, however, the inflationary effect moderated. Although the experience of the energy crisis in the 1970s and its excessive and persistent inflation is unlikely to be repeated, mainly because of a better functioning monetary policy framework, Fukac finds recent evidence suggesting that oil prices again are playing a more significant role in inflation. He argues that temporarily accommodative monetary policy and structural changes in the U.S. economy?such as increased consumer spending on petroleum?possibly doubled the effect of oil price changes on inflation relative to the early 2000s.

Keywords: Petroleum products - Prices; Inflation (Finance); Prices;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Review

Publication Date: 2011

Volume: 96

Issue: Q IV

Pages: 27-53