Unit 3 · Level 3 · Commodities & gold
Supply shocks
In 1973 OPEC embargoed oil and the price roughly quadrupled within months; Western economies got stagflation: inflation AND stagnation at once. In 2022, war sent European gas prices to roughly ten times their normal level for a while. When key commodities spike, inflation arrives through every petrol pump and power bill. And no central banker can print oil.
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What you get asked
Why are supply-shock price spikes so awkward for central banks?
Rate hikes cool DEMAND. When the problem is missing SUPPLY, tightening fights inflation only by squeezing the rest of the economy, a painful trade-off.
The 1970s oil shocks delivered '___': inflation and stagnation at the same time.
The ugliest combo in macro: prices rising while the economy shrinks, leaving central banks with no painless option.
Order how a supply shock becomes inflation
The shock enters through inputs, spreads through costs, and lands on your receipt, leaving the central bank stuck holding the trade-off.
What happened to European natural gas prices in 2022?
The TTF benchmark briefly traded at roughly ten times its pre-crisis norm in 2022, a supply shock that fed straight into European inflation.
In one line, what IS a commodity shock?
The Inflation unit gave you demand-pull and cost-push; commodity shocks are cost-push at planetary scale. Even service economies run on energy. 🐜
The rest of this unit
Oil, gas, copper, gold: the real stuff that feeds inflation and humbles forecasters.