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Keywords:

  • E31;
  • E58;
  • Q43
  • inflation;
  • price;
  • oil shock;
  • energy intensity;
  • monetary policy;
  • labor intensity;
  • disaggregate;
  • Great Inflation

This paper uses disaggregate U.S. inflation data to evaluate explanations for the breakdown of the relationship between oil price shocks and consumer price inflation. A data set with measures of inflation, energy intensity, labor intensity, and sensitivity to monetary policy is constructed for 97 sectors that make up core CPI inflation. A comparison of the 1973–85 and 1986–2006 time periods reveals that substitution away from energy use in production and monetary policy were both important, with approximately two-thirds of the change in response of inflation to oil shocks being due to reduced energy usage, and one-third to monetary policy. We find no evidence that other factors, such as changes in wage rigidities or changes in the persistence of oil shocks, played a role.