OIL PRICE SHOCKS AND ITS EFFECTS ON INFLATION

Abstract

The conflict between Russia and Ukraine had macroeconomic effects, caused especially by the sudden changes in the energy market. These destabilizations came on an economic background, already affected by the Covid-19 pandemic. We examined how the facts that happend lately had any influence on the global energy and oil market. On the other hand, we analyzed the connection between the changes of the oil prices and the level of inflation. This connection has been explored in the 1970s-1980s, when there was registered a great growth of the oil prices. In 2021, inflation began to register significant increases. We wanted to see how this trend of increasing inflation was influenced by the recent events from the oil market. We discussed how these changes determined the inflationary tension in the last period and how was the transmission of oil supply shocks in the US and Euro Area. The price of unrefined oil is not included in the calculation of the direct basket of inflation, but it is indirectly reflected in fuel prices, which determine the increase in transport costs and automatically lead to a series of price increases on the goods and services market. The objective of central banks to maintain price stability is very important, but also difficult, because every country can react differently to oil supply shocks.