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Soaring energy prices bad news for the economy

The high cost of oil and gasoline could act as a tax on consumers and undercut the government's stimulus plan.

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Filling up: John Lee stops at a station in Boston. Gas prices are up 51 cents a gallon from a year ago.

Mark Thomson

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Once again, concern is rising about the price of oil and gasoline.

On Tuesday, the price of oil hit a record $100.01 a barrel, up some $14 in eight trading days. It's the second time since late December that the price has hovered at the $100-a-barrel level.

The sharp rise is already showing up at the gas pump: Between Tuesday and Wednesday, the price of gasoline rose 4 cents a gallon, reports GasPriceWatch.com. Since Feb. 9, gasoline prices nationally are up 10 cents a gallon, for an average price of $3.05 a gallon.

For the economy, the run-up could not come at a worse time. Many economists believe the US economy is teetering on the edge of a recession. Higher energy prices act as a tax on consumers, absorbing money that would normally be used to buy other things.

If energy prices remain this high – or go higher – they could begin to eat into the rebate checks that the government is planning to start sending taxpayers in May.

"This is bad for the consumer and the economy," says Dennis Jacobe, chief economist at the Gallup Organization in Washington. "It will be an offset to the fiscal stimulus everyone is talking about."

Motorists are paying much higher prices than they were a year ago. According to GasPriceWatch.com, gasoline prices are up 51 cents a gallon from a year ago, when the price of oil was closer to $60 a barrel.

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