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Do energy price spikes cause inflation?

Author

Listed:
  • Owen F. Humpage
  • Eduard A. Pelz

Abstract

Many people mistakenly believe that a sharp rise in the price of energy is necessarily inflationary. They fail to understand that energy prices adjust with the demand and supply of energy, whereas inflation responds to the demand and supply of money. This Economic Commentary explains that the Federal Reserve can do nothing about relative energy prices, but can determine how relative energy price shocks are reflected in the overall level of prices. Over the last twenty years, the inflationary consequences of energy price shocks, while significant, have been fairly subdued.

Suggested Citation

  • Owen F. Humpage & Eduard A. Pelz, 2003. "Do energy price spikes cause inflation?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
    • Handle: RePEc:fip:fedcec:y:2003:i:apr1
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    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/2003/ec-20030401-do-energy-price-spikes-cause-inflation-pdf.pdf
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    Cited by:

    1. de Mendonça, Helder Ferreira & Garcia, Pedro Mendes, 2023. "Effects of oil shocks and central bank credibility on price diffusion," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 304-317.

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