Normally inflation is a sign of increased economic activity, but when the basic commodities that we depend on to run our economy (such as oil) go up in price it actually causes a slowdown in economy activity. When the price of oil goes up high enough, it fundamentally changes the behavior of individuals and businesses. Suddenly certain types of economic activities that were feasible when oil was very cheap are not profitable any longer. When the price of oil rises to a new level and it stays there, essentially what is happening is that more "blood" is being drained out of our economy. Our economy will continue to function when there are higher oil prices, it will just be a lot more sluggish.
In some way, shape or form the price of oil factors into the production of most of our goods and services and it also factors into the transportation of most of our goods and services. A significant rise in the price of oil changes the economic equation for almost every business in the United States.
Today, the price of WTI crude soared past 100 dollars a barrel before closing at $98.10. The price of Brent crude increased 5.3 percent to $111.25. The protests in Libya are certainly causing a lot of the price activity that we have seen over the past few days, but the truth is that oil has been going up for a number of months. Right now we are only seeing an acceleration of the long-term trend.
Things are likely to get far worse if the "day of rage" planned for Saudi Arabia next month turns into a full-blown revolution.
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