Energy prices are skyrocketing, and the economy is already feeling the strain from increasing gasoline expenses, although it is far from halting. The combination of considerably higher oil, natural gas, and coal prices, as well as other rising commodities and supply chain disruptions, is an extraordinary coincidence. The perfect storm of shortages and increased prices raises the possibility of a severe slowdown or possibly a recession in the economy.
Economists argue that, for the time being, the price increase is not the type of oil shock that will slow U.S. growth but that more significant Energy costs will have economic effects, particularly in regions like Europe where natural gas prices have surged. Spikes in oil prices are typically what get you into problems. They’re more likely to be supply-driven, and they’re more likely to have disruptive features with a broader range of possible growth drags.
“We do have a rise in Energy that will be a drag on fourth quarter growth,” he added. “It’s not at a point where we’re warning about recession, but it’s at the point where you have to worry about it hurting growth in a material way.” Consumers in the United States have already paid a premium for fuel, and heating and electricity bills are expected to rise more this winter. So far this year, oil prices have increased by more than 65 percent, while natural gas prices have increased by more than 112 percent since January.
According to AAA, fuel prices have grown around $1.10 per gallon since last October and are now at $3.27 per gallon of unleaded. So when the pandemic shut down the economy in 2020, oil prices plummeted and even went negative.