07:16 Oil isn't expensive if adjusted for inflation -- Barron's Online
Barron's Online discusses oil prices, which has whipped up a mini-hysteria in media. Many news reports note that crude oil is near $42 per barrel and gasoline at $2.00 per gallon are at record highs. But, according to the article, those prices are not records when they're adjusted for inflation. In 1981, following the Iranian Revolution and hostage crisis, oil prices reached an all-time high near $80 in current dollars (roughly $40 per barrel in that year's dollars). Gasoline also reached a peak in the early 1980s of $3.00 a gallon, adjusted for inflation. Today Americans actually are spending less of their household income on energy than they did in the 1980s. Energy spending for the average U.S. household is a mere 4.8% of after-tax income today, according to David Wyss, chief economist at S&P's. Energy costs were 8% of household income in 1981, he says. Mr Wyss says that if gasoline and oil prices remained high for 12 months, it would cut GDP by about $30 bln, only 0.25%. But he says, "We are seeing no evidence that people are driving less or changing vacation plans, which means that gasoline prices are not pinching very much." And, he adds, it all depends on whose ox is being gored. "High oil prices are bad for US Airways' corporate profits, but good for Exxon," Mr Wyss says. Some transportation co's, including FedEx, can pass on higher gasoline costs to consumers. But not UAL, which is "in bankruptcy, so it doesn't have any time," says Philip Verleger, a senior fellow at the Institute for International Economics in Washington, D.C. Mr Verleger also thinks Toyota Motor and Honda Motor would thrive, because they produce a wider range of fuel-efficient models, if energy prices spike higher. |
