by Matthew Rusling
As the United States wrestles with a sluggish economy and the political debt drama, the good news is that the price of oil is likely to keep inflation in check, U.S. analysts said on Wednesday.
Oil prices increased Wednesday on the global commodities market as U.S. demand heightened and amid concerns over Libya’ s political crisis. In London, Brent crude shot up 40 cents to 109.71 U.S. dollars after rising 90 cents the previous day.
But despite the increase, some economists said oil price will come back down, which will ease inflation.
“As oil price…declines further, the rate of inflation in both the U.S. and Europe should decline over the next year and probably beyond,” said James F. Smith, chief economist at Parsec Financial who formerly served on the President’s Council of Economic Advisers.
That is because oil is critical to the economy and is used widely, from heating homes to fueling transportation to powering office buildings. And when those costs rise, companies pass them on to consumers.
Another bit of good news is that disposable personal income in the United States is still rising faster than the Consumer Price Index or the Personal Consumption Expenditure deflator, and analysts expect that to continue.