Oil is a huge part of the total economic input so when oil prices rise, inflation occurs because inflation is a measurement of the rate of the way prices go up all over the nation’s economy. The United States Consumer Price Index or CPI is used to measure inflation and in March of 2022, a 40 year long high was set due to supply disruptions during the pandemic and the invasion of Ukraine by Russia because of the United States banning Russian oil imports.

In December of 2021, energy accounted for around 7 percent of the country’s CPI which had a direct effect on inflation. An indirect effect on inflation was also created by a raise in oil prices because crude oil is a main ingredient in the chemicals that are used to create plastic. This means that when oil becomes more expensive, most products that are made with plastic become more expensive. Another effect is the costs of transportation because oil is accountable for half of the price of fuel or gasoline.

There has been a shift in trends from the past because crude oil was a huge contributor to inflation back in the late 1900s. In the 1970s, crude oil was used in a more intensive way per unit for the economy with the United States economy consuming over a barrel of oil per 1,000 dollars of domestic product. That amount dropped to under .5 barrels by 2015, and there was less reliance on energy and oil which caused a decline in the rate of inflation or disinflation.

Throughout history, oil prices have had a bigger influence on the Producer Price Index or PPI (something that measures the price of wholesale goods) than the CPI (or consumer price for items and services). The St. Louis Federal Reserve stated that oil prices and consumer prices had a weaker link over time because there was there was more service in the United States economy overall. The bottom line is, inflation can be good or bad for oil prices, depending on whether it is short term or long term with the latter causing oil prices to decline.