What have you always wondered about the economy? Tell Us

High oil prices could deter improving economy

John Dimsdale Dec 24, 2010
HTML EMBED:
COPY

High oil prices could deter improving economy

John Dimsdale Dec 24, 2010
HTML EMBED:
COPY

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.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.