The Perennial Year ‐to‐Year Oil Price Confusion
Alan Reynolds“U.S. Inflation Hit 31‐Year High in October as Consumer Prices Jump 6.2%” That should make you wonder: What happened in 1990 to make that October ’s year‐to‐year CPI inflation rate of 6.4% so much like October 2021’s 6.2%?The first graph compares the 1990 –91 year‐to‐year percentage change in the oil price (79.3% in October) to the tightly linked year‐to‐year percentage change in the CPI. The price of West Texas crude oil rose from $16.70 a barrel in June to $36.04 in October and the year‐to‐year CPI marched up in l ock step to 6.4%. Then the year‐to‐year CPI inflation dropped back to 2.8% a year later as crude oil fell below $20. This was no coincidence.Now, fast forward 31 years. The price of West Texas crude rose106.8% from October 2020 ($39.40 a barrel) to October 2021 ($81.48). That was an even larger year‐to‐year percentage change than the Great Recession’s crushing 98.5% increase from July 2007 ($74.18) to July 2008 ($133.93).The second graph goes back to August 1971 (Nixonomics). It shows that year ‐to‐year percentage changes in the CPI (and all other price indexes) invariably go up and down with year‐to‐year percentage changes in the price of oil. This happened too regularly to prudently ignore. Higher oil prices also raise non‐energy costs such as transportation, pai nt, and plastics, so even core inflation is affected.Congress or the White Hous...
Source: Cato-at-liberty - Category: American Health Authors: Alan Reynolds Source Type: blogs