With the increase in the ether price, doesn't gas cost more, hence higher price to execute a contract? What is the current gas price today to execute a typical contract or send a transaction?
Yes, increasing value of Ether increases the transactions fees. That's why homestead reduces the default gas price by 60% from 50 Shannon to 20 Shannon.
Currently a transaction uses 21k gas. With a default gas price of 50 Shannon and an Ether value of 9 USD, you get:
0.00000005 * 9 * 21000 = 0.00945 USD / transaction
After Homestead, it is:
0.00000002 * 9 * 21000 = 0.00378 USD / transaction
Assuming the Ether value stays the same.
The more complex the commands you wish to execute, the more gas (and Ether) you have to pay. 1 Gas is currently set at 10 szabo (0.00001 ETH)
Here's the important part:
The gas price limit is fixed at present to provide for a stable launch of Ethereum but will be allowed to free float according to the demand and the amount of total gas per block will be increased gradually to encourage the stability of the Ethereum network. https://www.cryptocompare.com/coins/guides/what-is-the-gas-in-ethereum/
What it means is that when ETH is worth $50, 1 gas could be 0.000001 ETH due to the free float (demand/supply)
In essence, ETH can rise and gas can trend lower, meaning the costs of running a contract will decrease and the price of the base currency goes up.