High oil prices could deter improving economy

A gas pump display shows gasoline prices in New York.

TEXT OF STORY

STACEY VANEK SMITH: Oil prices are on the rise about 90 bucks a barrel this morning. That's making travel more expensive. Driving isn't much better -- gas is $3 a gallon or more in most places. And that's only expected to rise. Could high gas prices hurt the economic recovery in the New Year?

John Dimsdale reports from Washington.


John Dimsdale: As the global economy kicks back in gear, demand for oil is on the rise, and so is the price. Economist Zach Pandl at Nomura Securities says there are good reasons and bad reasons for oil price increases -- and this one is good.

Zach Pandl: Economists worry mostly about sudden supply-related price shocks rather than gradual demand-related increases in oil prices. The kind of increase we're seeing today, although it's uncomfortable, it probably doesn't have a very large impact for the economy as a whole.

Pandl says if oil prices were to spike, consumers might rein in their spending and reverse the recovery. Carl Larry with the Oil Outlooks and Opinions newsletter says gas at $3.50 to $4 a gallon won't spook drivers.

Carlo Larry: But I think once we get past there, then we start having to worry.

He says the economy will keep growing as long as oil prices increase no faster than about 10 percent per year.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...