High oil prices may hurt poorest Americans most
Thanks to a tight global energy market, oil prices are creeping upward at a steady pace, and drivers are feeling it at the gas pump. Some analysts expect crude prices to surpass $100 a barrel. The elevated value of such a ubiquitous commodity will ripple across the economy, even as the Federal Reserve tries to wrangle inflation.
The pump is the first place Americans would feel higher oil prices, said University of Houston energy fellow Ed Hirs, who spoke as he was about to fill up his own tank.
“I’m in a location with $3.75 a gallon gasoline,” he said.
As prices continue to rise, Hirs said, “discretionary spending, the runs to the fast food outlets, will probably diminish first.”
High prices likely won’t do much to suppress overall economic growth, but the poorest Americans will feel the pinch, said Cullen Hendrix with the Peterson Institute for International Economics.
“Energy expenditures are a significant portion of consumer spending,” Hendrix said.
People may opt for public transit, which depresses retail spending “and tends to drive up online kind of shopping,” Hendrix added.
Energy-intensive industries will also suffer, said Ana María Herrera, an economist with the University of Kentucky.
“Rubber and plastics, right? So a lot of what they use are chemicals, is oil, in their production process,” Herrera said.
For now, she said, the situation isn’t as severe as it became during previous periods of high prices.
Even so, elevated prices do complicate the Fed’s attempts to cut inflation, said New York University economist Mark Gertler.
“They might keep [interest] rates at this level for longer. Increasing costs puts pressure on firms,” Gertler said.
Ed Hirs at the University of Houston said the United States is more self-sufficient in oil now than in previous decades. “The U.S. is almost back up to a level of record production of over 13 million barrels a day.”
And oil-producing areas like West Texas and the Dakotas will benefit from the higher price, he said.
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