The Oil Price: Nothing to Smile About

The rising price of oil throughout summer 2008 resulted in higher prices for most other products, especially food. With a dip in the price of oil, some analysts expect central banks to hold off from lifting interest rates, maintaining less expensive credit and money for business. But that cheap credit can lead to risky speculation and bubbles, some economists argue. Current interest “rates now fail to compensate savers for inflation: real interest rates are negative,” explains Harvard economist Jeffrey Frankel as reported in the Economist. “As a result, the return to pumping a barrel of oil, selling it and investing the proceeds is often less than can be gained by leaving the oil in the ground and waiting for its price to rise further.” As inflation continues to batter markets and savings accounts, wary consumers perceive that any drop in oil prices could be temporary. – YaleGlobal