The Price of Oil and The Economy

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The price of oil is currently reaching historical highs. The reasons are subject to a great deal of debate by the pundits. Demand for oil continues to grow, while the supply, on the other hand, is not keeping pace. There is a general recognition that demand is much stronger because of unprecedented growth in Asia, and in particular China.

The current high price of oil will eventually affect the cost of goods and services. In addition to the increased price of goods and services in general, the direct cost of oil and related products will cause consumers to reduce spending in other areas.

To date there has not been an obvious negative impact on the economy because of the price of oil. It is partly for that reason that the Federal Reserve is continuing to raise interest rates to help tame inflation.