What is the relationship between crude oil prices and inflation?
Crude oil, the black gold, the king of bulk commodity, dominates the prices of nearly everything and it is reasonable. It is the most common gradient in chemical industry and the most important energy source after WWII. Gasoline, aviation fuel, plastic, asphalt and so on are all obtained from different processing techniques for crude oil, which shows the importance of this special commodity. The violent change crude oil prices affects every industry, especially the automobile industry and the mining industry. And these will continue to pass the influence to the downstream industry then the serious inflation begins. In the 1970s, there was a strong relationship between oil prices and inflation. However, in recent years that correlation is weaker as the U.S economy shifts from oil based energy to renewable energy. Nonetheless, inflation rates still track changes in crude oil prices.
In fact, the inflation we are facing today is mainly caused by the rocketing price of the crude oil . In 2020, because of the pandemic, nearly all oil-producing country closed many oil wells and cut back investment to reduce the great loss. And since the governments are more willing to invest in renewable energy to reduce greenhouse gas emissions nowadays, the production of crude oil is now insufficient to fulfill the demand. Furthermore in 2022, the high price of crude oil is mainly due to the widespread sanctions on Russian oil in response to the Russia-Ukraine crisis.
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