The yearly growth rate of the consumer price index (CPI) closed at 2.4 percent in February against a similar figure in January. In February 2025, the yearly growth rate stood at 2.8 percent. Note that, in June 2022, the yearly growth rate was 9.1 percent.

Most analysts are of the view that the sharp increase in the price of oil to around $95 per barrel (from around $64 at the end of February) is likely to lift the rate of inflation as depicted by the yearly growth rate in the CPI.

A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the common idea that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see chart).

But, is it valid to suggest that the price of oil could be a key determinant of the prices of goods and services? Producers of goods and services set asking prices. It is also true that producers, while setting prices take into account various production costs, including the cost of energy. Whether the asking price offered by producers will be realized in the market place hinges on consumers’ acceptance or rejection of the asking price. Consumers dictate whether the price set by producers is “right.” On this........

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