During Year 1, the cost of a barrel of oil rose from $60 to $110. In Year 2, it climbed again to $115 per barrel. Suppose that any change in oil prices affects the overall price level straight away and that the Consumer Price Index weightings do not change. What effect will the oil price changes have on a country’s Consumer Price Index and on its inflation rate in Year 2 compared with Year 1?
- Aeffect on the Consumer Price Index: decrease; effect on the rate of inflation: decrease
- Beffect on the Consumer Price Index: decrease; effect on the rate of inflation: increase
- Ceffect on the Consumer Price Index: increase; effect on the rate of inflation: decrease
- Deffect on the Consumer Price Index: increase; effect on the rate of inflation: increase