Soaring food and fuel prices have become a substantial burden on households in the United States, the United Kingdom and other economies since September 2010, and may have contributed to a slowdown in growth recently.
The International Energy Agency has warned “additional increases in (oil) prices at this stage of the economic cycle risk derailing the global economic recovery” and called on producing countries to raise the supply of crude.
But leading oil forecasters are divided over whether prices have yet risen far enough to ration demand — via direct effects (substitution, conservation) and indirect ones (falling incomes, slowing growth) — or need to rise further before the market finds a fundamental and geopolitical equilibrium.
THREE KEY QUESTIONS
Three questions are critical for both the global economic outlook and prospects for the oil market:
• Does the sharp rise in oil prices since September 2010 qualify as an oil shock?
• How do oil shocks affect economic performance in the United States and elsewhere?
• How do policymakers understand oil shocks and how will that shape their response?
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