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: Source Type: blogs