Thursday, March 31, 2005

Oil Prices Result of Global Demand

Victor A. Canto and Samir Ghia on Oil Prices and the Economy on NRO Financial: "The surge in oil prices has managed to grab the market's attention. Some analysts worry that higher oil prices, acting like a new tax on the economy, could choke the recovery and drive us into recession. But the correlation between oil prices and the economy depends on the nature of the oil shock. And in a way, this oil shock is good natured. "
today’s rising oil prices are the result of global economic expansion. This is good news: Rising oil prices caused by an increase in demand cannot cause a recession. In fact the opposite is quite true: A recession would lead to lower oil prices.

The Federal Reserve and inflation worriers in general should take note of all this. Inflation is too much money chasing too few goods, and higher growth produces lower inflation, not higher inflation. Hence, the growth-driven oil-price increase will lead to a boost in supply and eventually lower oil prices."

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