Why Oil Price Spikes Feel Worse

What we find is that when oil prices spike there is an immediate shock to the disposable personal incomes for individuals. For example, during the Iran crisis oil peaked at $109 per barrel for consumers, however, it “felt” like $242 a barrel. Then at the peak of the oil market in 2008 when oil traded for $138 a barrel it felt much closer to $258 as real disposable incomes had declined.