The Correlation Between Oil Prices And Inflation Isn’t Straightforward

For decades, the conventional wisdom in macroeconomics has been that high oil and gas prices are frequently the leading cause of high inflation. In fact, many analysts have blamed the two major oil price shocks of the 1970s for high inflation during the decade. The argument has been that oil prices and inflation are connected in a cause-and-effect relationship, therefore, as oil prices climb, inflation tends to follow in the same direction higher and vice-versa.

This is supposedly the case because oil is a major input in the economy, and if input…