We’re starting to see the other shoe drop. When oil prices first shoot up, there is a tendency – at least among those of us with a measure of disposable income – to regard the matter as a nuisance. We talk about pain at the pump and consider carpooling and adopting other small changes. But, as we have started to see in recent days, the pain of high oil prices is never confined to the pump. Consider this news on how rising oil prices have sent all sorts of costs higher:
The price of goods imported to the U.S. climbed 1.4% in February from a month earlier as costs increased for energy, industrial supplies and food…. Prices for imported foods and beverages increased 0.8% last month and have risen 15.8% over the 12-month period ending in February – the biggest year-on-year rise since the Labor Department’s index was first published in September 1977.
Higher oil prices mean that that factories are paying more for raw materials at the very time they are attempting to ramp up production following a lengthy downturn. Similarly, the U.S. service sector, which accounts for as much as 70% of the country’s GDP and is seeing its economic recovery gain momentum, is now also at risk of having all its progress undone by higher oil prices. The fuel-intensive farming industry is seeing operating expenses rise, meaning that costs of domestically-produced food will also continue to rise.
When you consider how widely oil price shocks are felt, you understand how sustained high oil prices will damage world economic recovery as the International Energy Agency cautioned. “If (the price of a barrel of crude oil) continues to be $100 through the year, it will certainly be detrimental for economic recovery all over the world,” the agency’s executive director recent told Reuters. Standard & Poor’s warned on March 16 that if oil prices – which approached $120 a barrel last month – were to reach $148, it could cause global panic and risk a double-dip recession.
Of course, for most consumers who don’t have a lot of wiggle room in their budgets, pain at the pump is painful enough. What is worse is that you ultimately can’t duck the cost by taking the train to work or turning down the thermostat. The dramatic events of a still-young 2011 continue to remind us of all the events around the world that are out of our control. Building a strong domestic energy supply is one of the tools we have to help strengthen our economy and shield it from damaging oil price shocks.
