In January 2009 Alan Blinder wrote in Vox: “Oil shocks redux”:
Why didn’t the most recent run-up in oil prices have dramatic effects as in the 1970s? Here one of the world’s leading macroeconomists surveys a variety of explanations: i) developed countries are now less energy-intensive, ii) wages are more flexible, iii) the US auto industry is relatively smaller, iv) monetary policy now targets core inflation, and recent shocks were to industrial demand, not oil supply.
In sum, the search for an explanation of why oil shocks have smaller impacts now than they did in the 1970s has not come up empty. Rather, it has turned up a long list of factors, no one of which appears to be dominant, but each of which may play some role. If that is correct, the supply-shock explanation of stagflation remains qualitatively relevant today, but it is less important quantitatively than it used to be. Thus with luck and sensible policy, food and energy shocks need not have the devastating effects that the supply shocks of the 1970s and early 1980s did.
The three highlighted sentences are key. The indirect effects of the run-up in oil prices were dramatic. And that was because (monetary) policy was neither lucky or sensible. Monetary policy was certainly not targeting core inflation!
The “drama” and “insensibility” of monetary policy that at that point was not “targeting core inflation” comes out clearly in the charts below: