Economist: Oil shock reverses disinflation
Crude oil recently spiked above $120/barrel, potentially ending the "Great Moderation" era with higher inflation volatility and structurally elevated interest rates.
The surge in crude oil prices is attributed to escalating conflict in the Middle East, reversing the disinflationary trend observed recently. February inflation expectations have increased as a result of this oil shock. The jump in oil prices to $120 a barrel could signal the end of the "Great Moderation," potentially leading to higher inflation volatility and structurally elevated interest rates. This could have far reaching effects on the economy. The rise in crude oil prices may impact various sectors, potentially leading to increased costs for consumers and businesses. Central banks might face challenges in managing inflation while trying to support economic growth.
