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The rising impact of high oil prices

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One indicator of the effect of the steady rise in oil prices came on Wednesday when the Labor Department reported that the March consumer price index, a measure of the rate of inflation, rose by 0.3 percent – or close to a 4 percent annual rate after no change in February. Energy prices alone rose 1.9 percent in March, with gasoline climbing 1.3 percent.

If it were not for a large drop in clothing prices – due to retailers trying to unload inventory – the overall inflation rise would have been much higher. If you didn't eat and didn't drive, the inflation rate was only 0.2 percent, barely within the Federal Reserve's comfort level.

In the past three months, average consumer spending on energy came to $663 billion, or 6.5 percent of total consumer spending, according to Moody's Economy.com. A year ago, it represented 5.8 percent and in 2002, it was 4.1 percent of their spending. "If gasoline breaks through $4 a gallon by Memorial Day, that would mean spending on gasoline would have risen by $100 billion since the beginning of the year, or roughly the size of the tax rebate checks going out," says Mr. Zandi. "The rebate checks are going to pay for filling up our tank."

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