"It used to be that a big increase in energy prices would be a big inflation worry," says TIME senior economics reporter Bernard Baumohl. "But the U.S. economy is a lot different than it was in the 1970s. It's less dependent on heavy manufacturing and more dependent on retail sales and technology." Costlier fuel doesn't translate as neatly into higher-priced goods, and that means the Fed won't have to worry about inflationary pressures -- which are still nearly nonexistent -- unless things really get out of hand. "If the price of crude stays in the high teens" (it's around $16 now), "inflation may edge up to 1.8 percent over the summer," Baumohl figures. And as anyone who lived through the Carter years can tell you, that's hardly inflation at all.
Thankfully, the Economy Doesn't Run on Gas
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WASHINGTON: Well, the age of dirt-cheap gas was nice while it lasted. According to the Energy Department, a gallon of regular unleaded gas now averages $1.14 nationwide. That's up 2 cents from just a week ago and up 23 cents, or 25 percent, from six weeks ago, when the inflation-adjusted average was among the lowest in America's history. That's great news for OPEC countries and the rest of the oil-producing world -- it means those production cuts, buttressed by increased seasonal demand, are indeed pushing up the price of crude -- and a real bummer for vacationers. Prices at the pump are expected to peak right in time for Memorial Day. But macroeconomists are resting easy.