Daniel Lacalle: Oil spikes and wars grab headlines…
Oil spikes and wars grab headlines, but they do NOT create persistent inflation. ❌ Blaming “oil” or “wars” for persistent inflation is comforting—and wrong. They move relative prices for a while, but they do not make the aggregate price level rise year after year. ❌ Oil shocks reshuffle prices: energy up, something else down. Unless central banks and governments validate the shock with massive spending and easy money, the overall inflation rate falls back. A one‑off oil spike cannot explain years of rising aggregate prices. If oil prices or “supply chains” caused inflation, we would have had deflation between 2022 and 2025. Instead, aggregate prices kept rising as governments spent and printed at record levels. ❌ Wars are usually disinflationary. They freeze or destroy investment plans, delay big consumption decisions, and raise uncertainty. Households and companies cancel or postpone spending—they don’t go on a buying spree. ✅ What turns temporary shocks into persistent inflation is policy. Massive fiscal deficits, monetized by central banks, keep demand above supply and embed higher prices into the system: more units of currency chasing the same goods and services. ✅ The pattern is clear: every time central banks and governments flood the system with liquidity and deficit spending, core inflation moves up and stays up. When they finally cut spending and tighten policy, inflation rolls over—regardless of oil or war headlines. ✅ Inflation is not a mysterious external monster. It is a political choice: spend, borrow, and print beyond the real capacity of the economy, and the unit of account gets diluted. Stop doing that, and “persistent” inflation disappears. ✅ Wars and oil shocks matter for volatility and individual prices, but the only reason aggregate prices keep marching higher year after year is simple: governments that refuse to adjust spending, and central banks that refuse to say no. Stop asking the government for “free” things. You will pay for them many times over. Graph via FRED
https://x.com/dlacalle_IA/status/2055718269542183256?s=20
