Over the last year, a sharp rise in energy prices - including natural gas, coal, and oil - has contributed to renewed fears that higher input costs could constrain industrial production, reduce household real incomes, and slow economic activity. Relative to pre-pandemic levels, global crude oil prices are now up roughly 50%.
In a historical context, this is not uncommon: Since the 1990s, the year-over-year increase in oil prices has exceeded 50% roughly once every three years. In the U.S., while fears that higher energy prices will act as a regressive tax on consumers are warranted, the overall burden from higher oil prices is still considerably below past peaks.
However, the long-term transition away from carbon and toward green energy is likely to be marked by a period of generally higher and more volatile energy prices. Underlying the geopolitical risks that have escalated recently, uncomfortable vulnerabilities that have arisen from these green initiatives are reflected in today's price moves.
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