With oil so central to society and manufacturing, higher oil prices are a factor behind inflation. In general, higher inflation can raise oil prices, but higher oil prices can, likewise, raise inflation. Some investors and analysts track this information to anticipate inflation or the cost of crude. This is why the consumer price index is used. It tracks how much consumers spend due to higher oil prices and general inflation. You just have to ask why. 

The causes of higher oil prices vary and depend on politics, war, supply, and demand. Jerome Powell, who sits as Fed Chairman, aligns as much as a .2% rise in inflation as equal to roughly a $10 rise in oil prices per barrel. Once you understand why inflation influences oil prices or vice versa, you’re then equipped to make better investment decisions. 

Transportation

Modern vehicles still rely on fossil fuels to operate. The many vehicles of the world are large ships, 18-wheel trucks, and space rockets. Keeping transportation accessible is partly achieved by having ready fuel. The more fuel costs rise, the more that everyone pays. This is how oil influences inflation. Inflation takes into account prices as they relate to the typical things that people spend money on. In this society, most everyone spends on transportation. 

Manufacturing

Roughly 19.78 million barrels of oil are used each day in the U.S., and productivity consumes a large portion of this. Oil is used in manufacturing because it makes things and is made into things. Up to 60% of all crude goes to manufacturing. Petrochemicals are used for plastic making. Solvents, which are used in laboratory tests, are also made from petroleum. 

Global Investments

A large investment market for oil exists. This is because oil’s price is managed through what’s called a futures market. By settling prices for future oil today, for example, oil stakeholders can hedge future uncertainty via a contract. These contracts are what all levels of investors use to trade oil. Large sums of money put into this investment market can also raise the price of oil.