Inflation and crude oil prices
In the CPI calculation food prices and oil prices play key roles, and both of these are in bad shape due to surging crude oil prices in the international markets. Hence, the US government has decided to release their strategic petroleum reserve to reduce the oil prices on the domestic front, which is expected to control the inflation rate for the time being.
OPEC rising oil prices
OPEC is the largest producer of oil globally, while the US and Russia also produce significant scales of oil. However, OPEC has suffered huge losses in the last year, when the pandemic was at its peak. At that time, major industrial works were halted and people were restricted to their homes. Hence, oil demand got slashed, dragging the oil prices down sharply. This year, as the pandemic came under control, oil demand has expanded, and OPEC is trying to make up for the last year’s losses. So, they are not boosting their productions, rather with higher demand and lesser supply they are keeping the prices surged in the global markets.
Criticizing this policy by OPEC, the US and India reached the biggest oil producer countries requesting to increase oil production. Certainly, OPEC has ignored this. So, the US, including other major oil consumers like India, Japan, South Korea are going to release their strategic petroleum.
However, it is anticipated that the US will not be very successful to control the oil price by this method, as OPEC can again hike the oil rates. Although, by this method, the major oil consumers including the US could slip the crude oil rates below the 7-years highs of $80/barrel in the past week.
US Monetary policy to control high inflation
Importantly, the US is trying to keep the inflation rate under 2% for the time being but is not ready to hike the interest rate any time soon which is nearly zero at the moment. The US President Joe Biden has recently decided to retain Jerome Powell as the Federal Reserve Chairman for the next term for 4 more years. So, the present monetary policy is expected to continue. So, without an interest rate hike, it is important for the government to cut the oil prices to keep the inflation rate under control.
Original news source Credit: www.goodreturns.in