But a surge in the price of one good, no matter how important, is not an “inflation.” Inflation is a sustained and general increase in the price level, not an alteration in the relationship of prices to one another.
Inflation (as Milton Friedman taught us) is everywhere and always a monetary phenomenon. The classical response to inflation is to tighten money, by for example raising interest rates.
Is there anybody who’d suggest that an increase in the interest rate is an intelligent response to a surge in oil prices caused by political turmoil? Not hardly. Oil is just more expensive. As a result, oil purchasers have been made somewhat poorer. That’s a big problem, but if we are to address it intelligently, we have to diagnose it accurately.
I’ve always been skeptical of the Friedman idea that inflation is only a monetary phenomenon, particularly in the case of oil and other commodities: could not the rise of the price of oil cause a rise in the price of stuff that uses oil—that is, the transportation system among other things—which gradually passes price increases on through the rest of the economy? Yeah, you can substitute goods for complements, but at a certain point the essentials can’t be avoided—right?