Introduction
Inflation and oil prices are actual modern themes, as they are directly connected with the incomes and wealth of most people. Various factors influence them, and only some of them may be regulated by the government. In addition, every governmental regulation leads to drawbacks: for example, it may reduce inflation by increasing the interest rate, but it also will raise taxes, decreasing, thus, the population’s incomes. In that way, blaming the government and the U.S. President for the high inflation rates and oil prices is wrong. There are many other influences and influencers, and some of them are out of the range of governmental power.
Inflation Factors
Four main factors which influence the inflation rates are:
- Oil price changes;
- Financial crises;
- The interest rate of the Federal Reserve;
- Money supply.
Oil prices are the primary influencer of world economics, including inflation rates. They influence it indirectly, being connected with the inflation expectancy rates: raising them when they increase (Hammoudeh and Reboredo 27). In the long-term, high expectancy raises the inflation, while low one lowers, correspondingly (Talha et al. 31). Financial crises tend to increase the effect of other factors: after the crisis, the rates respond to oil prices much quicker (Istiak and Alam 324). The reason is the growing instability in the inflation rates after the drastic and chaotic changes of the crisis.
Governmental regulation is connected with two other factors: money supply and interest rate. Despite being different, those factors are interconnected: the interest rate set by the Federal Reserve determines the size of taxes, and the money supply is the amount of free money in circulation. High-interest rates lower both inflation and the money supply, while low rates increase inflation (Mankiw 142). The government may use those instruments to shape the country’s monetary policy. When outer factors, such as high oil prices and crises, cause inflation, it may stabilize the situation by increasing the interest rate (Yellen 203). It is advantageous in case of a financial crisis.
Oil Prices Factors
In contrast, four factors responsible for the current high prices for fuel are:
- International relations and agreements;
- Adverse events, such as wars;
- Stock prices change;
- Supply and demand.
In general, oil prices are much more unpredictable than the inflation rate, as they depend on various influences and have a significant impact on the world. International relations and agreements connected with fuel trading and production determine the price changes in the long term (Bouoiyour et al. 20). Adverse events, such as the Gulf War, have another type of influence: drastic, powerful in the short-term but gradual in the long-term (Bouoiyour et al. 26). They make oil prices unstable for some time: they usually fall, but then prices stabilize and return to the initial number.
Stock and oil prices influence each other constantly, and when stock prices rise or fall, oil prices will probably rise or fall, too, and vice versa (Katırcıoglu et al. 566). The supply and demand factor is, perhaps, the most important: if the fuel is not needed anymore, for example, due to the usage of renewable energy, its prices will drop. After the 2008 financial crisis, there was a massive drop in fuel demand, and the prices dropped correspondingly (Kim 13). When the U.S. started the enormous shale oil production in 2014, oil prices dropped, too, due to the increased supply (Kim 1). In that way, there are ways to influence the oil prices directly by increasing its supply: the more the production, the lower are prices.
President’s Influence
There is no stable and certainly working way for how the government of the U.S. may regulate inflation. The power of the U.S. President is in the influence on the interest rate of the Federal Reserve, regulation of the amount of money in circulation, and appropriate internal and external politics. In case of crisis, he can increase the interest rates to stabilize the situation: inflation will stop and become more predictable (Yellen 203). In the case of fuel prices, when the U.S. oil production increases due to shale production, its prices drop as the oil amount rises (Kim 1). In addition, the fuel prices depend on the significant oil- and gas-producing states, such as OPEC countries and the Russian Federation (Bouoiyour et al. 27). The influence of the President is only in agreeing with them on the best terms or influencing them directly.
Discussion
As the President cannot directly influence the inflation and oil price rates, is it not accurate to blame the resident for inflation and high fuel prices? The government may adjust the Federal Reserve’s interest rate to stop or slow inflation, but it is not the only factor that influences it (Mankiw 142). In addition, while inflation slows when the interest rate is high, it hinders economic growth as the amount of money in circulation decreases. Thus, this mechanism cannot be used often, as it may become the tool for limiting and oppression, not regulation.
Conclusion
While the President may regulate some factors which cause the inflation rate in the United States, he cannot be responsible for everything that happens in the world. Thus, it is unreasonable to blame him for the high inflation rates or oil prices: those functions depend on many factors, and only some of them may be regulated by the President. In addition, all regulation has drawbacks and limits, as overregulation may make the economy unfree and weaken it, hindering growth. In that way, blaming the President for economic problems would be unreasonable.
Works Cited
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Hammoudeh, Shawkat, and Juan C. Reboredo. “Oil Price Dynamics and Market-Based Inflation Expectations.” Energy Economics, vol. 75, 2018.
Istiak, Khandokar, and Md Rafayet Alam. “Oil Prices, Policy Uncertainty and Asymmetries in Inflation Expectations.” Journal of Economic Studies, vol. 46, no. 2, 2019, pp. 324–34.
Katırcıoglu, Salih, et al. “The Role of Oil Prices, Growth and Inflation in Bank Profitability.” The Service Industries Journal, vol. 40, no. 7-8, 2018, pp. 565–84.
Kim, Myung Suk. “Impacts of Supply and Demand Factors on Declining Oil Prices.” Energy, vol. 155, 2018, pp. 1059–65.
Mankiw, N. Gregory. “A Skeptic’s Guide to Modern Monetary Theory.” AEA Papers and Proceedings, vol. 110, 2020, pp. 141–44.
Talha, Muhammad, et al. “Impact of Oil Prices, Energy Consumption and Economic Growth on the Inflation Rate in Malaysia.” Cuadernos de Economía, vol. 44, 2021. Web.
Yellen, Janet L. “Inflation, Uncertainty, and Monetary Policy.” Business Economics, vol. 52, no. 4, 2017, pp. 194–207.