Inflation: A Tangle of Supply, Demand, and Monetary Choices

The relationship between inflation and oil production reveals critical insights into economic dynamics. US crude oil production has experienced reductions, yet domestic production remains high relative to consumption. This indicates that oil prices alone may not be the primary driver of energy costs. The expansion of the Federal Reserve's balance sheet from $4 trillion to $8 trillion during COVID, coupled with significant fiscal stimulus, resulted in an influx of dollars into the economy. This increase in dollar supply contributed to rising costs across various sectors, including energy, production, labor, and assets. While the fiscal and monetary policies of the government and the Federal Reserve are key contributors to inflation, they operate within a complex system. Global supply chains, characterized by interdependencies and vulnerabilities, significantly impact inflation. Disruptions in one area can lead to widespread inflationary effects, reinforcing the notion that inflation is influenced by both monetary choices and supply chain dynamics.