An excellent video from the Wall Street Journal which explains how higher oil prices impact the inflation rate. By pushing up the price of transport this in turn affects the price of goods / services as producers pass on this extra cost to consumers. Although US focused it does go through simple supply and demand theory to explain how the price may fall or rise.
Today Brent Crude Oil prices rose above $105 a barrel (see graph below) for the first time since 2014 after Russia’s attack on Ukraine amplified concerns about supply disruptions. United States is working with other countries including OPEC on a combined release of additional oil from global strategic crude reserves – in theory the supply curve moves to the right to try and reduce prices. Russia is the third-largest oil producer and second-largest oil exporter and low oil stocks and limited spare capacity, will see additional pressure on prices. Furthermore increased demand with a lot of economies coming out their COVID restrictions will put further pressure on prices.
The RBNZ made a forecast that oil prices should head back to around the $80 per barrel mark but that seems to be rather optimistic with the current political climate. What is sure is that higher global oil prices will continue to put pressure on New Zealand’s CPI.
Sign up to elearneconomics for multiple choice test questions (many with coloured diagrams and models) and the reasoned answers on Inflation. Immediate feedback and tracked results allow students to identify areas of strength and weakness vital for student-centred learning and understanding.