> Increases in the price of X cause the demand for X to drop
There has been a lot of "demand destruction", but because oil is an intermediate input to so many things, especially anything that requires transporting, what actually happens is it forces up the overall price level.
It's simply following the facts and the history of inflation in economies.
If oil forces up prices, that means people have less money to spend on other things, which reduces demand for them, which reduces prices.
The only way to get a general price increase is to increase the money supply.
Inflation numbers track the deficits, with a lag of about 13 months.
And when was the last time oil price reductions caused deflation?
Deficit spending isn't the only way to increase the money supply. Lowering interest rates and increasing loans is another.
People go into debt to pay for expenses and necessities.
In fact here's a simplified model: oil prices increase, oil stocks go up, shareholders borrow against them and pay for gasoline. No government deficits were created but the money supply increased due to oil prices going up.
The federal deficit, however, is not being paid back, and so the increase in the money supply causes inflation.
The same thing happens when you write a check. You create money by writing the check. When the check is cashed, the money is transferred, and the check is no longer valid.
Same with using a credit card.