Wednesday, April 13, 2011

Will High Gas Prices Disrupt Economic Recovery?

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Feeling the pressure at the pump? You’re not alone. The average price for a gallon of gas in the U.S. is now $3.79 - that’s up 11 cents from last week - and almost a dollar more than last year.

A professor tells CBS’s Western Michigan affiliate WWMT
the price hike is due to the crude oil futures market - which is focusing on the ongoing war in Libya.

“Two weeks ago, when it looked like Gaddhafi was going to win, I was thinking we might even see below $3 gas this summer, and Gaddhafi was within two days of winning, that would’ve had several implications. It would have gotten rid of any desire of people elsewhere in the Middle East to rise up.”

Despite the price increase, economic reports say gas sales are going down. A CNBC correspondent says consumers remember the wallet-busting $4/gallon average in 2008 and don’t want it to happen again.

“Typically, folks cut driving as the last resort after cutting out shopping, outings, other discretionary spending, but this time it’s gas to go first, Chris. Retail sales are up two percent from a year ago,  so it’s a little bit different than textbook economics, but folks are definitely re-jiggering their priorities.”

But a Fox News reporter says many Americans are reshuffling their budgets to pay the gas bill - which could slow down the economic recovery.

“It has a ripple effect, economists say, on other spending, you know, the drivers have to get the money for the gas and that has to come from somewhere, so if they’re spending more here, then they may be spending less on going out to dinner, or going to the movies, or even paying their electric bill.”

An investment strategist tells The New York Times
he too thinks high prices will have an effect on the economy but not enough for a double-dip recession.

“The recent surge in energy prices may well slow the pace of economic recovery in the next few quarters … However, the different position and tenure of the U.S. job market could be the reason why the contemporary energy crisis may prove more a consumer irritant at the pump than a cycle-ending recession risk.”

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