Tuesday, May 19, 2009

Gas Prices and Economic Recovery

by John Kerkhoff

The economic recession has been widespread and detrimental. Nearly every sector of the economy has been hurt and consumers are trying to stretch their dollars.

To add insult to injury, gas prices are going up just in time for the summer driving season. In fact, prices have risen nearly 40 cents in Ohio in only three weeks. Gas prices in Athens are seven cents higher than the national average.

Some economists say that the hike in gas prices is a positive sign for the economy. Rising prices may be an indicator that consumer confidence is improving, and the economy on the whole might be stabilizing.

Some economists say that deflation - falling overall prices - is a sign of economic decline. The price of crude oil fell from nearly $150 per barrel to $33 per barrel in one year. Now, the price of crude is up to about $60 per barrel. This could be a sign that the economy is recovering.

Ohio University economic professor Ariaster Chimeli says that higher gas prices show that consumer confidence is increasing, something that has plummeted during the recession. He also says that a change in consumer demand is more responsible for higher prices than an overall economic recovery.

Ariaster Chimeli Discusses Gas Prices

We all feel the effects of higher gas prices. We'll have to budget differently, spend less on other goods and services and travel less. Some say it is worth paying more if we are able to escape our current woeful situation. But Chimeli says that increasing prices can not be attributed to a recovery. The recovery, he says, is more than just gas prices. He says that higher gas prices in the summer are normal and should be expected, even in a recession.

Ariaster Chimeli Discusses Gas Prices

Chimeli says that people can expect gas prices to rise even higher this summer. He does not expect prices to hit the highs we saw last summer.

The Energy Information Administration agrees with Chimeli that prices will not reach $4 per gallon anytime soon. It says that prices are still below market level and they will gradually rise over the next few years.

According to the EIA, higher prices at the pump indicate a turnaround in at least some sectors of the economy. The EIA says it is uncertain when the recession will end. It says that the downturn is a long-term problem and there is still much that needs to be done before full recovery.

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