Oil prices must remain elevated for three months before they would affect the U.S. economic outlook, said Drew Matus, senior U.S. economist at UBS Securities LLC.
“For now at least we have a very short spike higher,” Matus said today in a television interview on “Surveillance Midday” with Tom Keene. “Unless it’s a sustained spike higher, we don’t really have to do anything. You need to see it feed through into higher gasoline prices. Then people have to deal with it long enough for it to actually enter their psychology.”
Oil rose to the highest since October 2008 as violence in Libya threatened to disrupt exports from Africa’s third-biggest supplier and spread to other crude-producing nations in the Middle East.
Crude for April delivery closed up $2.59, or 2.7 percent, at $98.01 a barrel on the New York Mercantile Exchange after earlier touching $100 a barrel as heavy gunfire broke out in Tripoli, army units defected and a former aide to Muammar Qaddafi said the revolt may topple the regime within days.
If the high price of oil makes gasoline more expensive, inflation expectations could rise, according to Matus. Consumers typically buy the same amount of gasoline every week, so they notice price movements, he said. Consumer expectations that prices will remain high then play into Federal Reserve policy makers’ concerns about whether inflation is accelerating.
“Inflation expectations are a great determinant of what’s going to happen with inflation,” Matus said. “One of the great misperceptions is that the Fed doesn’t focus on total inflation, that they only focus on the core. They focus on total but through a little bit of a roundabout way and how it feeds into core.”
‘Benign’ Inflation Outlook
UBS has a “benign outlook” for inflation, forecasting prices to increase “a percentage point and a half,” Matus said without citing a timeframe. Fed policy makers project that prices, excluding food and energy costs, will rise 1.3 percent in 2011.
Matus, based in Stamford, Connecticut, said the economy could be in a position similar to 2003, when Fed Chairman Ben S. Bernanke said inflation couldn’t pick up with unemployment around 6 percent.
“The same issue is occurring again today where we could see a moderate pickup in inflation with a high unemployment rate,” he said.