End of an era of cheap oil

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Gramlich said that such a situation in the oil market will inevitably lead to the simultaneous acceleration of inflation and higher unemployment. Given the fact that this situation is only temporary, it is not the worst case scenario, which can occur in the event that the monetary authorities will not be able to keep inflation under control. Under normal circumstances, after a period of low interest rates monetary authorities, trying to maintain stable economic growth, a policy of gradual and very modest increases in the cost of short-term loan. The "shock" conditions the economy is extremely sensitive to the rise in nominal interest rates, while showing a temporary increase in both inflation and unemployment. Regarding the current situation in the oil market E. Gramlich also noted that it is an important characteristic of the "time element", ie the current high oil prices are important, but only a temporary economic development.

Greenspan on the economy and oil

In a speech on September 8 Fed Chairman Alan Greenspan (Alan Greenspan) the budget committee of the U.S. Congress a lot of attention was also paid to the state of the world oil market and its interaction with the economy of the country. The impact of rising oil prices on economic activity in the United States has long been a subject of debate among economists. Most macroeconomic models treat the increase in oil prices as a tax on the inhabitants of the country, which reduces the purchasing power of households and increases expenses.

Economists disagree about the extent of this influence, partly because of differences in the key assumptions used in the statistical models that underlie the analysis. Moreover, the model is usually based on the average historical experience, which is dominated by a period of moderate fluctuations in oil prices, which may not adequately reflect the negative effects of their jumps on economic activity. In addition, the very prospect of price changes is uncertain. The movement of energy prices has become an important factor of influence on overall inflation this year. Despite the rise in the price of "black gold", which lasted until mid-August, inflation and inflation expectations eased in recent months. Certainly, the cost of labor per unit of output increased in II quarter as productivity growth slowed down compared to the last two years of hourly wage increases.

The growth rate of profit companies, non-energy and financial sectors, which made a significant contribution to the cost pressures in the earlier period, has recently slowed. Moreover, the increase in import prices, excluding energy, decreased. This phenomenon, coupled with the slowdown in the rate of profit, helped ease the basic consumer inflation in recent months.

However, the outlook for oil prices, as noted above, is uncertain. High prices have led to a reduction in fuel consumption (in particular, the gasoline in the U.S.), which is even with the seasonal factor, from April to July dropped by 200 thousand barrels per day. But the growing concern about the long-term supply, coupled with the expectation of a significant increase in demand from the growing economies of China and India rose quotes distant futures to levels that far exceed the range of their values in recent years.