They may even get passed through to continuing rates of inflation if they become incorporated into price- and wage-setting behavior. Increases in oil prices also reduce consumer spending power, in much the same way as when a new excise tax is passed along by oil producers. To the extent that these producers are foreign, there should be a corresponding drop in domestic demand.
Even if the oil producers are domestic, a drop in domestic demand could still occur if the producers do not spend as much of their new income as consumers would have or if they do not recycle their profits to shareholders. Estimating the impact of these oil shocks on the real economy can be done in at least two ways.