Monday, August 29, 2005

Oil Prices increasesOil prices increases do no have the same effect on global economy as it happened before, because of some the following reasons: a.-Increases in productivity, due to information technology, which has been like a sterilization factor for agregate prices level further increases. b.- Increases in global supply of goods ,(China playing the big global producer role) push downward pressure on global prices level.- c.-Substitution of oil by another sources of energy ,have increased in recent years , such that those economy are less vulnerable to oil shocks. Brazil ,for instance has reduced its dependence on oil ,using alcohol.- These three factors have probably allowed the economy to goes by pretty well (Specially for Central Banks),even while oil prices are increasing .So far, the supply side shock, due to oil prices increases has been sterilized. However it is not clear for how long. On the other hand, Consumers, have not adjusted theirs expectations as quickly as expected, to this shock because they have not known precisely whether this phenomenon were permanent or transitory. Now ,it looks like it is permanent, oil demand is increasing at faster pace thane supply . But , there is still a big question. Where do the all additional money received by oil producing countries, will goes to?. In the seventies , Latin America economies received huge amount of “oildollars”, allowing these countries to get higher economic growth than otherwise would have been possible .Nowdays ,it is highly possible it will go in a different direction. The answer to this question, can make the difference between moderate growth or a recession