The U.S. continued to strike Iran over the weekend with President Trump saying the action was “in honor” of three American soldiers who were killed in recent days. As the conflict continues to heat up, oil futures rose higher through the rest of the year, and consumers are already feeling the pain at the gas pumps.
So far, U.S. households have managed to navigate the latest wave of cost-of-living increases, though UBS’s top economist, Paul Donovan, warns that “economic gravity” will catch up with families at some point.
In a note shared with clients this morning, Donovan wrote that “while oil costs are rapidly being passed to consumers, the response is to cut monthly savings rather than non-oil consumption.” However, “this cannot be sustained indefinitely if oil prices remain elevated—in the Wile E. Coyote scenario, economic gravity eventually exerts itself—but it could easily be sustained for the remainder of this year.”
Donovan is referring to the famous Road Runner cartoon in which Wile E. Coyote runs off a cliff-edge without realizing, hangs motionless in the air in a moment of disbelief, before crashing down to earth.
