“Is today's pain at the pump tomorrow's barrier to recovery?” asks J.P. Morgan Funds’ Market Strategist Andrew Goldberg. There is a precise quantitative relationship between changes in energy prices and economic growth, with high oil prices impacting GDP. The longer answer to the question is at this moment still uncertain. There are good arguments on both sides regarding the future direction of the price of oil, and hence the duration of pain at the pump and how it could affect the strength of continuing recovery of the US economy.
In terms of how an increase in oil prices poses a drag on GDP growth, J.P. Morgan’s own research has been able to quantify the interaction. As Goldberg notes, this research “Suggests that every $10 increase in the price of a barrel of oil can cause a 0.2% decline.”
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