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Rising oil prices have historically preceded high inflation. Is there a strong relationship between the oil price and inflation?
Rising oil prices often bring dire headlines warning investors about the looming threat of inflation. But is there a causal relationship between the oil price and inflation?
Inflation devalues currencies and results in higher prices for consumer goods and services. In turn, the larger cost of living for consumers can negatively impact discretionary spending and economic growth.
Historically, higher oil prices have statistically correlated with inflation. As prices for oil go up, so do prices for goods that are dependent upon oil. For example, costs may increase for goods made from petroleum-based products such as plastics, or for goods such as fruits and vegetables that have traditionally been transported to market via gasoline- or diesel-powered trucks and trains.