Graph above is the daily Brent price (from the EIA) from Jan 2009 to August 31st, with today's number added from new stories. Since the Libya-inspired peak in April we seem to have been in a volatile-but-generally-down trend associated with weak global macroeconomic news and particularly uncertainty about the Eurozone.
The question now is whether the global economy will firm up a little bit in the second half or continue to worsen. A significant part of that will be down to government policy, and in particular whether the recent trend to fiscal austerity and monetary dithering will change in the face of weak economic growth.
Still, oil over a $100 a barrel is hardly cheap by historical standards and suggests the limits of how much economic growth the global economy can sustain at the present without triggering resource price shocks - not too much.
"Still, oil over a $100 a barrel is hardly cheap by historical standards and suggests the limits of how much economic growth the global economy can sustain at the present without triggering resource price shocks - not too much."
ReplyDeleteAgreed.
Stuart has expressed his concern in the past that economic thinkers have not been paying the proper attention to the threats to the economy posed by Peak Oil.
ReplyDeleteI thought that Tim Duy's latest piece through this concern into stark relief:
http://economistsview.typepad.com/timduy/2011/09/questions-and-answers.html
All I could think while reading it was: stagflation, stagflation, stagflation.
Assuming that we have entered a period of secularly increasing oil prices, central banks are going to have to start rethinking the trade offs they make in their dual mandate of price stability and growth. I would prefer that they choose growth over price stability right now and get us out of this darn liquidity trap. As oil prices continue to rise and inflationary pressures increase, a trade off whereby we might get out of the liquidity trap in return for a suboptimal but manageable level of inflation will be taken off the table.
Then we will find ourselves in the worst of all possible worlds - stuck in a liquidity trap with rising (if not hyper) inflation. Frightening times.