Who is respnsible for this inflation hike?

Question

Who is respnsible for this inflation hike?

Answer 1

I'm not sure which hike precisely you mean, but oil prices are probably at least partially responsible.

Oil prices have soared in recent years. This means, that it is more costly to produce agricultural and many industrial goods. And it has become more costly to distribute them on the transport infrastructure.

I see three reasons for Oil prices having gone up.

First, demand for energy by growing economies has been ever increasing in recent years which created an upward pressure on prices.

Second, stocks and bonds (and other things) have performed badly in recent years. In this context, investors are driven to invest in commodities. This aspect was helped by very expansionary monetary policies (low interest rates), particularly by the U.S. Federal Reserve. Expansionary monetary policy tends to increase the amount of money, which in turn has to go somewhere, either consumed (supporting demand and therfore GDP growth) or invested in financial assets - or commodities.

Third, the outlook for oil is that there will be shortages. If oil production peaks, but demand is still increasing, then prices are bound to go up even further. This makes oil an interesting long term investment, but also spurs development of alternative energy sources.

Since global growth is decelerating (maybe partly because of higher oil prices) and people are adapting their behaviour to higher levels of energy prices, demand for energy should stop increasing at a fast rate in the coming years. Oil prices could therefore keep around their current levels for a while (if nothing else happens). In this case, the hike will be a one-off price hike, but inflation will not increase in the long term.