January 12, 2016 11:59AM 

# Some Blessings of Cheap Oil and Low Inflation 

By [Alan Reynolds](https://www.cato.org/people/alan-reynolds) 

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1\. Cheaper oil lowers the cost of transporting people and products (including exports), and also the cost of producing energy-intensive goods and services.

> For the seventh week in a row, the average price of a gallon of diesel declines, to $2.235 <https://t.co/X3Zaq52YSO> [pic.twitter.com/vYMStMZ2mj](https://t.co/vYMStMZ2mj)
> 
> — St. Louis Fed (@stlouisfed) [January 2, 2016](https://twitter.com/stlouisfed/status/683425155721347072)

2\. Every upward spike in oil prices has been followed by recession, while sustained periods of low oil prices have been associated with relatively brisk growth of the U.S. economy (real GDP).

[ ](https://pbs.twimg.com/media/CYNDZZzUEAAagPY.png)

![Media Name: cyndzzzueaaagpy.png](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/cyndzzzueaaagpy.png?itok=27UNxXwb) 

  

  

3\. Far from being a grave danger (as news reports have frequently speculated), lower inflation since 2013 has significantly increased real wages and real consumer spending.

[ ](https://pbs.twimg.com/media/CW1xSSjWoAA1mBH.png)

![Media Name: cw1xssjwoaa1mbh.png](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/cw1xssjwoaa1mbh.png?itok=sSiAn8C_) 

  

4\. Cheaper energy helps explain why the *domestic* U.S. economy (less trade &amp; inventories) has lately been growing faster than 3% despite the unsettling Obama tax shock of 2013.

[ ](https://pbs.twimg.com/media/CW1tW2xU8AAjAxh.png)

![Media Name: cw1tw2xu8aajaxh.png](/sites/cato.org/files/styles/pubs_2x/public/wp-content/uploads/cw1tw2xu8aajaxh.png?itok=dNQNdQgV) 

  

  

##### Related Tags 

[Energy and Environment](https://www.cato.org/research/energy-environment), [Trade Policy](https://www.cato.org/trade-policy), [Herbert A. Stiefel Center for Trade Policy Studies](https://www.cato.org/herbert-stiefel-center-trade-policy-studies), [Inflation](https://www.cato.org/inflation) 

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