As gas nears $4 a gallon, fears of a recession are growing. In the past, recessions have generally been preceded by sharp increases in the price of oil and gas. Logically there appears to be a connection but upon further review we can see that there have been many other times when an oil price spike has not triggered recessions.
This time, it looks like consumers are adapting to the higher prices and there is no sign that this will trigger a recession.
Gas prices have more than doubled since President Obama was sworn in and that will probably have some impact on the election. But the gains seen in the last year are in line with normal volatility and consumers can adapt to normal price changes. Normal price volatility is unlikely to trigger a recession.
Over the past ten years, the annual rate of change in gas prices is about 18 percent. With prices about 12 percent higher than they were a year ago consumers may complain but they are able to adapt like they normally would.
Rapid changes in gas prices, an annual change of more than 60 percent a year, are usually seen before the economy slows. This happened last summer and the pace of economic growth slowed into the end of the year.
Consumers may face pain at the pump this summer, and politicians may feel pain in November, but the price of gas is behaving normally for now and the economy can continue growing slowly but surely even with gas at $4 a gallon.
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