Common sense tells us that the recent doubling of oil prices will raise overall U.S. price levels and force the Federal Reserve to raise interest rates, which would cause more tumult for battered bank stocks.

But many economists say not to worry. They stress that an increase in oil prices will be self-correcting in terms of inflation because it would trim demand elsewhere in the economy.

"People find they don't have as much in their bank account because they are paying $1.30 a gallon for gas instead of $1.10," said David Littman, chief economist at Comerica Inc. in Detroit. "They will have to cut back on entertainment or eating out -- leaving the entire inflation environment unchanged."

The price of oil, now about $23 a barrel, has climbed steadily since February, when it hovered in the $11 range.

The rise reflects increased demand from resurgent overseas economies and the recent success of big producers in restricting supply.

"The rising demand for oil is a bellwether for the turnaround of the world economy," said Mr. Littman. "The misinterpretation is that people equate that with inflation."

Higher prices for Texas intermediate crude -- the benchmark price in the United States -- has done little to push up key economic numbers such as the consumer and producer price indexes, observers said.

In August, the CPI and PPI had risen 2.3% from a year earlier.

To get a better feel for the degree to which prices are rising, many economists pay more attention to the core CPI, which factors out the highly volatile energy and food prices.

The core CPI for August had risen 1.9% from a year earlier, the lowest increase in 33 years, said Mark Vitner, vice president and economist at First Union Capital Markets Group. "That is a big reason why the Fed did not raise interest rates last time around."

As long as the economy can absorb higher oil prices "without affecting the core inflation rate, the Federal Reserve is not going to be all that concerned," said Sung Won Sohn, senior vice president and chief economist in Wells Fargo & Co.'s Minneapolis office.

So why is inflation not taking off as it did during the oil price increases of 1979? One reason, Mr. Littman said, is that the Fed had pursued a loose monetary policy from 1977 through 1979, with reserves growing 8% to 10% annually.

With money abundant, people were able to buy gas at the higher prices and not cut back in other areas.

Also, the Fed is being stingier today with reserves, which are expanding at a 5.6% annual rate, down from the robust annual rate of 7% a year ago.

Even Mr. Sohn threw in one caveat. He said it might be too optimistic to theorize that an increase in oil prices will depress demand for other goods.

"If we look at the economy, oil goes into everything from garbage liners to cosmetics," Mr. Sohn said. "So if you assume the higher price of energy will percolate throughout the economy sooner rather than later, then the outlook becomes more worrisome." ?

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