Peak Oil Task Force Report - City of Bloomington - State of Indiana

Inflation and Volatility
It will be difficult to predict the effect of peak oil
on prices. As Rubin suggests, the natural effect
of petroleum shortages would be to cause
inflation. The primary cause of inflation in such
an environment would be an increase in the
price of oil.
And, as discussed in the Transportation chapter,
a significant increase in the cost of fuel will
stress the budgets of households reliant on
personal vehicles and will have an especially
regressive effect on the community’s lowest wage earners. Similarly, the cost of products
will likely rise for at least two reasons. First, many products (plastics, aspirin and clothing,
to name a few) are reliant on oil as a key input. Second, as Bloomington imports most of
the products it consumes, as the cost of transporting goods to the community increases, so
too will product prices escalate.
Report of the Bloomington Peak Oil Task Force
Source: Clayton Guiltner, blog entry, Apr. 22, 2008
A period of inflation, accompanied by slow or negative economic growth, would represent a
return to the so‐called “stagflation” of the 1970s and early 1980s. There were two major
periods of inflation during this time. The first, during 1973‐74, arose from the “first oil
shock” caused by the OPEC oil embargo that resulted from the 1973 Arab‐Israeli War. It
saw the rate of inflation increase from an annual rate of 3.63 percent in January 1973 to a
high of 11.80 percent in January 1975. Inflation declined somewhat thereafter, falling to a
low of 4.86 percent in December 1976 before beginning to rise again. It shot up in a major
way following the “second oil shock” resulting from political events in Iran in 1978‐79. In
November 1978, Iranian oil workers reduced output from 6 million barrels per day to 1.5
barrels per day. The inflation rate in the United States rose from 8.89 percent in
November 1978 to 14.76 percent in March 1980. It remained as high as 10.14 percent in
October 1981. Meanwhile, GDP actually declined in 1973 and 1974, and again in 1982.
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