As a big chill settles in over the country, oil prices continue their decline and are now down 15% since mid-July. High oil prices are typically associated with inflation, but given the precarious balance of the U.S. economy, low oil prices may lead to inflation, too.
Americans fuel the economy by spending money on goods and services. With lower oil prices and unseasonably warm weather, Americans are paying less to heat their homes and less to fill the gas tanks. As a result, disposable income is increasing and Americans are doing what Americans do — pumping those "extra" dollars right back into the economy which creates inflationary pressures and may lead to future rate hikes from the Federal Reserve.
This trend may be reversed, however, by the Big Chill sweeping the nation this week. Cold temperatures increase the demand for oil and that should push prices higher. Higher prices means less disposable income which should ease some of the growth pressures on the economy.