Rising energy prices are driving inflation higher again around the world, putting pressure on major central banks to raise interest rates despite the risk of weakening economic growth.
Oil prices climbed above 100 dollars a barrel last week as disruption continued in the Strait of Hormuz, six months into the Iran war. Advances by Houthi forces have also raised fears over Saudi oil supplies.
The increase in energy costs is feeding through into household and business bills, adding to wider price pressures and forcing policymakers to reconsider how they respond to oil shocks.
Central banks have traditionally treated such shocks as temporary, choosing to wait for the disruption to ease rather than increase borrowing costs. Higher rates can reduce demand, but they cannot directly lower the price of a barrel of oil.
This time, however, policymakers are confronting a more persistent threat to energy supplies. That is reviving the debate over whether tighter monetary policy is needed to prevent higher fuel costs from pushing inflation further upwards.
Any decision to raise rates would bring more expensive borrowing for households and businesses, potentially slowing growth while energy prices remain elevated.
