The extraordinary decline in the price of oil is not quite the unalloyed gain that some analyses suggest, said The Times of London in an editorial yesterday. Excerpts:
In the cycle of boom and bust that has characterized the global economy over the past decade, commodity prices have played a central role. The Western industrial economies cannot now escape recession. The recent precipitate collapse in oil prices is, however, an isolated source of encouragement as businesses and consumers brace themselves for the gathering storm. Three months ago oil prices reached almost $150 a barrel. Yesterday they traded at just over $60. In normal times, oil prices act as an automatic stabilizer. When growth accelerates, energy demand increases and a rising oil price acts to moderate economic activity. When the economy slows down, a declining oil price acts as an informal tax reduction.
But these are far from normal times. As the global economy is buffeted by financial crisis and negative growth in the United States, the dramatic fall in oil prices is not a marginal effect. Sharply lower oil prices ease the pressure on living standards and moderate inflationary pressures.
