By Chelsey Dulaney

A: Economists generally believe sudden changes in oil prices have a temporary effect on inflation. But it depends on how high prices go, how long they stay there, and what else is happening in the economy. Federal Reserve economists in 2024 looked at how an oil-price shock stemming from a change in foreign supply would impact U.S. inflation and the broader economy. Here's what they found:

A 10% jump in real oil prices would boosts inflation by 0.15 percentage point over the following year.

The impact on overall economic growth is negligible in that scenario, Fed researchers found. However, investors are currently betting that a rise in energy prices will lead the Fed to slow the pace of interest-rate cuts. Fed-funds futures show investors now see a 47% chance that the central bank cuts rates again by its June meeting, down from 57% last week, according to CME Group data.

What about the post-pandemic surge in energy prices?

Economists thought it would have a temporary impact on inflation-and were wrong. But the jump in energy prices was much bigger back then: Brent crude surged from around $50 a barrel at the start of 2021 to over $120 after Russia invaded Ukraine in 2022. It also collided with pandemic supply-chain disruptions that drove up consumer prices.

The Fed estimated oil prices were responsible for about 1 percentage point of the rise in U.S. inflation-which reached about 8%-in the first quarter of 2022.

What about the rest of the world?

Countries that rely on oil and natural gas imports, such as those in Europe and Asia, are more vulnerable. European natural gas prices surged nearly 50% on Monday as investors braced for supply disruptions.

Capital Economics estimated that if energy prices stay at current levels, eurozone inflation would rise by about 0.3 percentage points. Economic growth could also take a small hit.

Most Asian countries also rely heavily on oil imports, particularly from the Middle East. A 10% increase in oil prices would raise inflation by about 0.2 percentage points, ING economists estimated.

What if oil goes to $100 a barrel?

That would have a more meaningful impact on the world economy and households. Inflation across the developed world could rise by 0.7 percentage points and central banks could be forced to start raising interest rates again, according to Capital Economics.

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March 02, 2026 10:03 ET (15:03 GMT)

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