Sunday, April 10, 2011
Rising oil prices beginning to hurt US economy, weakening the benefits of stronger job growth
Gas prices are rising again. "Just when companies have finally stepped up hiring, rising oil prices are threatening to halt the U.S. economy's gains". The higher gasoline prices were primarily caused by unrest in middle east and Africa. Plus strengthening US economy drives up demand for energy and oil in particular. From a consumer perspective, "more expensive energy siphons away money that would otherwise be used for household purchases, from cars and furniture to clothing and vacations". I don't see any reason why would oil prices go down in the near future, however according to the president of the Federal Reserve Bank of Cleveland, Sandra Pianalto, "large increases in food or energy prices tend to be temporary. History shows that they are often followed by sharp declines".
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6 comments:
High oil price will slow down US economy recovery. I believe this high price will just be temperate. as the unrest in the north Africa and middle east is still going on, there is no reason to asume the price will go down, unless some oil produce countries increase their production. But it is not likely to be.hopefully the high price won't hurt US economy that much.
Increased oil price will wreak havoc on the US economy due to increased prices of all the goods that rely on transportation and automobile transportation. This would allow the U.S. automakers to increase fuel efficiency on their models to appeal more attractive to the consumers. Or to invest more in green alternative fuel and to increase public transportation. Either way, both of these will be expected to rise. Let this be a lesson for all of us who rely heavily on foreign oil.
Increasing oil prices are probably temporary. With increased democratization in the region, there should be better relations between the United States and Egypt. If Lybia is (being optimistic here) done within the next year or two, it will surely help the US's cause. The increase in prices of oil could also spur on an increase in R&D into alternative fuels that could give the US and Europe more energy independence.
I definitely agree with the thinking that prices will go down; however, the main issue is the amount of time it will take for them to go back down. With all the unrest in the Middle East, prices have gone up pretty quickly (and are supposed to get up over $4 once summer hits), but as a general rule they don't go back down near as quickly. This means even once the situations get sorted out, the state of elasticity of gasoline prices will keep them higher than they should be for a longer period of time.
Another thing is that the backlash that occurred last time gas prices reached this level isn't as likely to happen this time around. A few years ago when prices skyrocketed, people were so shocked that they actually did start showing it through a drop in demand. This time I think we've just gotten used to the idea of gas prices being pretty high, and therefore demand will not drop as much as it did last time.
And actually one more quick thought: gasoline prices in the United States are significantly lower than they are anywhere else in the world. Whether this means that we just have a different way of doing things, or that our gas prices will keep rising until they line up with everyone else is obviously unknown, but even with our prices going way up we're in better shape than every other country.
I totally agree that gas prices a high and they should come down, but just as an interesting note: gas prices in Europe are much higher. For example, in Turkey people pay $10.47 per gallon. But the thing with Turkey is that Turkish government imposes ridiculously high tax on gasoline which I don't think is the case in the US.
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