What influence do foreign oil producers have on U.S. inflation?
The inflation rate can respond quickly to changes in the price of materials that are widely used in the economy. Because American consumers use a great volume of petroleum-derived goods, oil qualifies as such a material. The production policies of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers that follow OPEC’s lead can significantly affect overall prices in the short-term. Many people remember how much inflation rose during the oil boycott of the early 1970s, when the CPI hit double-digit levels several times. OPEC production policies, however, have short-term effects because high oil prices stimulate domestic production of oil and oil substitutes. Thus, the economic “shock” from high oil prices that Americans feel through higher prices for transportation, food, manufactured household products, and other goods dependent on energy from oil ultimately fades away as new sources of energy come onto to the U.S. energy market. Q: Does the strength of the do
