The oil price and inflation (with RQ)

An interesting post on oil price and inflation by the Economist (Explaining low inflation, the Lowdown)

The article argues that oil price may not be the key driver of inflation, especially core inflation (which excludes oil and food). A graph shows the price change and energy intensity of the different sectors are not correlated (0 correlation).

Also a stronger dollar is not necessarily the cause for the low inflation. Mainly because service sector inflation is below its long-run trend, and service goods cannot be imported. (Question: what about the price of lower living cost translates into lower service price increase? This also seem to be a story)

What has caused the service sector inflation to slow? One possibility is that the service sector face no need to increase its price. The other (the article claim this the best) is because of the stagnant wage.

Research Question: What has caused the price of one sector to increase? Is it mainly the wage, or is it the price of surrounding sectors? This is the network project I was working on before, and perhaps I will need a Granger causality test or something along that way.  This is hard research to carry due to bilateral causality.

More comment: Is it wage that push up price, or price push up wage? I think reality it happens both ways. Higher Demand –> Higher Price –> Workers Demand Higher Wage.  Higher Demand –> Longer Working Hours –> Higher Wage –> Higher Price.


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