It May Be Worse Than You Think.

• Author: TEMPLE-RASTON, DINA
• Position: Rising oil prices

The latest run-up in oil prices has a deja vu feel to it.

Just when everyone was starting to convince themselves that this year's spike in oil prices was different from the past energy crises that triggered global slumps, pockets of the world economy have begun to look wobbly.

While it would take a sustained period of oil prices in the $40 range to spark the 1970's combination of roaring inflation, high interest rates, and glacial growth, economists are worrying aloud about how much damage current oil prices have already wrought. According to the London-based economic consultancy IDEAglobal, if oil prices end up averaging $30 a barrel for 2000 (which looks increasingly likely), that will knock off a half percentage point of growth in Asia. Thailand, Taiwan, and South Korea could lose a full percentage point of growth. In Central America, $30-$35 a barrel of oil could force regional governments to spend nearly $2.5 billion on oil imports this year, almost twice as much as they spent in 1999 to import 51.4 million barrels, according to official figures.

"This crazy crude price is impoverishing us," Costa Rican President Miguel Angel Rodriguez lamented recently. Honduran President Carlos Flores, still trying to dig his country out from under Hurricane Mitch in 1998, sounded a similar refrain. He said crude prices were derailing his country's economic recovery.

While emerging economies are harder hit by these swings in energy prices (higher oil prices gobble up a proportionately larger amount of their GDP), they aren't the only ones fretting about the latest turn of events. Some analysts estimate that the oil crisis of 2000 will reduce growth in Europe by half a percentage point next year because the high cost of fuel has cut into consumer budgets. Similarly, U.S. growth could be whittled down by a full percentage point if oil prices stay in the $30 a barrel range. (The futures market is predicting the price of oil will fall over the coming year -- to about $29 a barrel.)

Doomcasters are reviving memories of the stagflation of the 1970's, when prices soared and the economy slowed at the same time. Federal Reserve policymakers were worded enough to mention energy prices in a recent Federal Open Market Committee (FOMC) post-meeting statement. Their concern: The run-up in prices could raise consumer and business expectations that inflation might begin to surge. Until now, "subdued" inflation expectations have been a key to the expansion, the Fed...