According to Federal Reserve Chair Jerome Powell, every $10 increase in the cost of a barrel of oil raises inflation by .2%, which reduces economic growth by .1%. Brent crude was $63 at the end of March 2021, reaching a peak of $133 in the second week of March of 2022. That should mean an increase in inflation of roughly 1 percentage point. The US experienced 7.9% inflation during the past year. This means that most of the inflation we have seen is not caused by increased oil prices. Services, for example, experienced a 4.8% increase in price, while goods inflation rose 13.8%. Part of the inflation comes from a dramatic increase in the minimum wage in some states.
Much of the increase in gas prices is caused by talk and politics, not a change in supply. The keystone Pipeline was not operational yet. So, closing it did not change supply. The same is true for the Nordstream II in Europe. Even the US decision to stop buying Russian petrol was to be done over a period of time and did reduce supply overnight, although prices reacted instantaneously.
Gas prices often go up in the current market because of sentiment or expectations about a future decrease in supply. This still doesn’t explain why overall inflation in the US is so high.
