All US recessions have been preceded by an oil price shock. This has been one of the strongest relationships we have concerning business cycles. Of course, all price shocks have not lead to recessions. The global recovery has begun so the demand for energy has increased. We are now having another price shock with oil hovering in the mid-$80's. Prices are significantly higher from the price bottom.
Up over $40 dollar and almost double the lows, so what does this mean for the current recovery? Oil prices are determined in the global market so those economies which have been dong well should be able to weather the higher prices, but economies which have seen slower growth will see this price increase serve as a drag on economic performance. Gasoline prices have only increased about 15% so the impact of higher oil has not hit the consumer through their driving costs. This cannot usually be sustained but the controlled increase has blunted the oil shock.
Up over $40 dollar and almost double the lows, so what does this mean for the current recovery? Oil prices are determined in the global market so those economies which have been dong well should be able to weather the higher prices, but economies which have seen slower growth will see this price increase serve as a drag on economic performance. Gasoline prices have only increased about 15% so the impact of higher oil has not hit the consumer through their driving costs. This cannot usually be sustained but the controlled increase has blunted the oil shock.
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