9/20/2023 A central bank like the federal reserve in the united states can help survive a bank runRead NowSo what was already driving inflation around the world at that time? A clue can be found in a 2002 paper written by MIT professor Athanasios Orphanides while he was on the board of the US Federal Reserve (America’s central bank, also known as the Fed). The 1973 Yom Kippur war led to a hike in oil prices, but it did not cause the 1970s era of ‘Great Inflation’. The Federal Republic of Germany, Europe’s largest economy and biggest energy consumer, experienced its highest inflation rates of the decade throughout 1973 – first peaking at 7.8% in June that year, before the war and any hint of an oil price increase. In fact, inflation around the world had already been picking up well before the war (which lasted less than three weeks). But this narrative is misleading – and half a century later, in the midst of strikingly similar global conditions, needs revisiting. Many historical accounts suggest the decade of global inflation and recession that characterises the 1970s stemmed from this “oil shock”. The oil embargo, announced 11 days later by the Organisation of Petroleum Exporting Countries (Opec) under the leadership of Saudi Arabia, was followed by a major hike in the price of a barrel of oil at the end of December 1973. The war, between Israel and an Arab coalition led by Egypt and Syria, began on Octo– the Jewish holy day of Yom Kippur. Fifty years ago, a war broke out in the Middle East which resulted in a global oil embargo and a dramatic spike in energy prices.
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