Oil Price Spikes May Trigger Inflation Through Central Bank Stimulus Rather Than Direct Costs

Average Canadian households will spend an additional $500 per year on direct fuel as gas prices reach a national average of $1.91 a litre. This shift in spending leaves consumers with less money for other goods and services, weakening the broader economy. As growth slows, the risk of recession increases. Peter Schiff argues that this economic contraction triggers a specific government response: larger budget deficits, lower interest rates, and quantitative easing. It is this combination of stimulus and monetary expansion, rather than the cost of oil itself, that drives higher inflation. The sequence began with the war in Iran and the closure of the Strait of Hormuz, which caused oil prices to rise.