How inflation, rising gas prices and the Ukraine conflict is affecting the U.S. economy

Appearing on ‘The Kentucky Side,’ UC economics professor discusses multiple economic issues

Rising inflation and gas prices, supply chain shortages, the conflict in Ukraine, an uncertain job market and low interest rates are combining to create an unsettled short- to medium-term outlook for the United States economy.

Michael Jones, PhD, the Kautz-Uible Professor of Economics at the University of Cincinnati Carl H. Lindner College of Business, recently was interviewed on “The Kentucky Side,” a podcast hosted by Michael Monks, to discuss these pressing economic concerns.

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Michael Jones, PhD, associate professor of economics at the University of Cincinnati Carl H. Lindner College of Business.

Perhaps the most alarming issue for Americans is surging gas prices, though Jones noted the rise in prices has been occurring for “quite some time.”

“Last week the prices were just about $4 per gallon for gas; they were closer to $2.50 a month ago. We’ve seen this for quite a while,” Jones said. “Part of that is due to the supply chain issues. We’ve had a lot of difficulty with COVID and getting supplies with our logistics and transportation networks. So, part of the run-up is due to COVID-related issues.”

Fortunately, Jones noted the U.S. only imports about 4 to 5% of its energy from Russia. However, he said, not much can be done in the short term to address the escalating cost of oil.

“If you talk to (U.S.) producers, they’re running into the same supply chain constraints that other industries are,” Jones said. “They’ll tell you, ‘We can’t find the workers; we’re having trouble getting equipment.’” 

The increase in gas prices is just part of the “larger story of inflation,” according to Jones.

“We just saw that prices increased nearly 8% year over year. Energy represents a pretty substantial portion of that increase,” Jones said. “As consumers have less money to spend, they are no longer going to be spending as much on groceries, they’re not going to be going out as much.”

If you want to bring inflation down, you have to raise interest rates. That’s also not pleasant for the consumer because they can’t borrow or spend as much as they did previously.

Michael Jones

The so-called "Great Resignation" isn’t helping matters. Jones said even though unemployment rates are at record lows, many people — especially those close to retirement with stable 401(k) plans — have decided to leave the workforce. Also, workers are seeing increased power, moving to other companies if their needs are not met due to the wealth of jobs available.

“I think what’s interesting to tie all these threads together is when we start talking about the increase in gas prices, now that workers have the flexibility to work from home, I think that’s going to help a little bit in mitigating this run-up in prices because as consumers’ demand for oil starts to change, they’re going to adjust their behavior as well,” Jones said.

A possible tool to combat inflation is to increase interest rates, of which Jones said, “have been very low for a long time.”

“If you want to bring inflation down, you have to raise interest rates,” Jones said. “That’s also not pleasant for the consumer because they can’t borrow or spend as much as they did previously.”

Listen to the full interview. Jones’ appearance begins at 30:20.

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