In response, the Federal Reserve increased interest rates in an attempt to cool mounting demand and moderate inflationary pressures. Energy's impact on the U.S. economy is unique. Unlike a DVD player or even an automobile, whose purchase can be delayed or canceled, people need energy and it affects the cost of almost every other economic variable. Consequently, if the factory has to pay more for energy, this increased cost is passed through to the consumer in a price hike for the widget that is purchased. Energy is used in the production of every product we buy.
Energy is also a key component of setting wage rates.
If one has to drive to work and heat one's home, one needs to either earn a greater income or transfer expenditures from purchasing DVD players and all other consumables to energy. If one chooses to keep consuming on a pre-energy price increase level, then one needs a pay raise. The result is a slowing economy in the guise of decreased spending, declining stock markets, and higher unemployment. There will be some decreased consumption of energy also which contributes to decreased overall consumption. The insidiousness of energy price increases is two-fold.