As Jerome pointed out recently, the fact that oil at $135 still is not making too much of a dent in demand indicates that so far we've just been consuming as much as we needed without regard to the price, but that is now changing and Oil is, for the first time in maybe a century, scarce.
It's only been a couple of weeks and people are still getting used to the idea. It's going to take months before informal demand reduction starts making a difference years before it sinks in that the party is over and some advanced planning would be a wise and sensible thing.
Migeru:
I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports.
It's the multipliers that will make it hurt, not the nominal price increase. We've been here before and I don't see it playing out any differently this time. Inflation will rise, interest rates will rise 'to combat inflation' (and good luck with that), and with so many people on borderline incomes already, including debt and food inflation, there's going to be extreme unhappiness.
The particular problem for the UK is that we have a national culture of whining, and very few people have experience of radical self-reliance or of 'make do and mend.'
It's the political implications that bother me the most. It's going to be easy to point the finger at immigrants and brown people (and Brown people) rather than doing anything constructive.
With a culture of blame to draw on, there's going to be a lot of blame going around.
Dealing with reality now doesn't just mean looking at the bigger picture, it means understanding that the politicians are out of the game - they have no clue what's going on - and everyone is going to have to make their own plans, individually and collectively.
It also means accepting that most people won't be making plans, even now.
They're going to wake up next year in a different world with no clue what to do, and no support. They'll whine about how nothing has been done, then realise that nothing is going to be done for them - and then things will get 'interesting.'
You might see government start to wake up and realise there's a problem then.
Or, given Whitehall's record - perhaps not.
I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports. It's the multipliers that will make it hurt, not the nominal price increase.
It's the multipliers that will make it hurt, not the nominal price increase.
As disposable incomes shrink, demand for everything except core essentials dries up, GDP is hammered, and there's a credit crash as people default on loans and mortgages. So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.
Likewise if margins shrink and businesses become unprofitable, businesses die, unemployment increases, demand goes down, and GDP is hammered again.
A useful exercise with real numbers would be to get some of the annual accounts posted by haulage and logistics companies at Companies House - that would show what kind of margins they're running on, and how close they are to being killed by current and future price increases.
So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.
