Harvard Economist Kenneth S. Rogaff offers one theory as to why our economy hasn’t crumpled already because of the inflation of oil prices, “the oil-price rise has been steady, not sudden, given the economy time to adjust.” He goes on to say that, “the effect of high oil prices today would be the difference between having a recession and not having a recession.” Needless to say, a recession would affect more than just the gas pump. Increasing prices would be evident throughout the entire market. “You’re adding an oil shock on top of a crunch on credit and housing collapse,” says Nigel Gault.
Perhaps the population that is hit most by the rising prices would be those who live in the suburbs. Making commuting that much more painful, many have begun to find alternative modes of transportation including busses and numerous families have turned to carpooling. Even more, the prices of houses have been steadily falling since 2006. Accelerating in the last three months of the year from a year earlier, house prices dropped 7 percent according to Economy.com.
The price of oil has quadrupled in 6 years, resulting in less money for miscellaneous spending, necessary expenditures, bills, taxes, and most evident, household mortgages. In the early 1980s, energy accounted for about 8% of household spending. As prices fell, energy costs fell under 4% of household spending in early 90s, but as prices continue to raise, so does the percent of household spending. In 2006, the median annual household income was $48,201. “By April of this year – when gas prices were about $3.60 a gallon – the same household was spending $3,196 a year, more than doubling consumption in dollar terms in less than five years.”
However, an increase in oil has
affected more than just the price of gas.
It not only has increased the production cost of many consumer products,
but also caused changes in the products being sold. The record high prices of, just recently reaching,
$100.88 a barrel is not all bad, the outrageous costs have forced on some of
the industry’s best fuel-saving technology.
One example is the abrupt reversal in car sales, going from gas-guzzlers
to fuel-sipping family cars.
take a second - take a look:
http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.html
