The rising price of oil hasn't found this economy's pain point — yet

When it comes to rising energy prices, consumers can stomach more than one might think.

The price of oil hovered around $100 a barrel Monday, as President Donald Trump’s war in the Middle East entered its third week. Just a few weeks ago, Brent crude was trading at around $70 a barrel, which means prices have jumped by more than 40% since then. But so far, the spike hasn't generated much of a shock to the economy.

Economists describe demand for oil as inelastic. 

“When we say inelastic, what we mean is that demand doesn’t change very much in response to price,” said George Pearkes, an analyst at Bespoke Investment Group. 

He said energy is getting more expensive, but people can’t really do much about it.

“What am I going to do instead? Am I going to drive less? Well, most of what I’m doing to drive, I can’t really avoid. I can’t avoid my commute to work, I can’t avoid picking my kids up from school, or going to the grocery store,” Pearkes said.

That said, there is a point where the price of oil gets so high that people actually start to pull back on other things. But it’s hard to know exactly where that is.

“Over 120 it really starts to bite,” Pearkes said. As in, $120 a barrel.

“And as we get up to around $140, it would be a steady progression,” said John Canavan at Oxford Economics.

“If you got up to $150, that would really start to squeeze things,” said Ben Ayers, senior economist at Nationwide.

Ayers said up until that point, consumers would simply face more inflation, so they’d have less money to pay for other things. The same goes for businesses. “Maybe I just won’t … make one less hire, or I won’t expand as much in one capacity, because I have to change around where my costs are,” he said.

But if oil prices break through that $120, or $140, or $150 threshold, economies around the world might stumble, said John Canavan at Oxford Economics.

“It’d be more likely to perhaps push the European Union or Japan into a recession. They are more reliant on the oil that is moving through the Strait of Hormuz,” he said.

Canavan said a recession could happen here, too. But even at those prices, the U.S. has advantages. For one, we produce plenty of our own oil.

And, said Pearkes at Bespoke, the economy up until the war was doing OK.

“The thing about the U.S. economy is that it’s very large, and has a lot of momentum, and it’s really hard to knock it off the trend that it’s on. And so you do need a really big shock,” he said.

Pearkes said the price of oil might have to hit $200 a barrel to push the U.S. economy into a recession.