Sri Lanka, March 23 -- Recent unrest in the Middle East has raised concerns that Sri Lanka may face a shortage of oil supply. Because oil plays such a central role in the economy-powering transportation, construction, electricity generation, and many other activities-many observers expect that such a shortage will inevitably lead to inflation.
This expectation is commonly explained through the idea of "cost-push inflation," where rising production costs-such as higher oil prices-are believed to push up the overall price level. However, this interpretation rests on a misunderstanding. To assess whether an oil shortage truly causes inflation, it is necessary to first clarify what inflation actually is.
What is inflation?
In modern usage, i...