Since the U.S.-Israeli war was mounted against Iran, oil prices have surged. As a result, pundits, journalists, and many economists have dusted off an often-used song sheet. It claims that higher oil prices will fuel inflation. While this narrative is widely accepted, it is wrong.
A surge in oil prices results in a change in relative prices, with the price of oil going up relative to the price of other goods and services. But the higher relative price of oil does not cause the overall inflation rate to pick up. That can only occur if the money supply picks up. After all, inflation is always and everywhere a monetary phenomenon.
