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High gas prices rattle drivers, businesses
ASSOCIATED PRESS
Photo
American flags blow in the wind outside a Gibbs gas station where a sign shows the new price of gasoline, Thursday, Feb. 24, 2011, in Topsham, Maine. Gasoline for U.S. motorists already costs more than at any point since 2008, despite ample supplies.
Associated Press
NEW YORK
High fuel prices are putting the squeeze on drivers’ wallets just as they are starting to feel better about the economy. They’re also forcing tough choices on small-business owners who are loathe to charge more for fear of losing cost- conscious customers.
Gasoline prices rose 4 percent last week to a national average of $3.29 per gallon. That’s the highest level ever for this time of year, when prices are typically low. And with unrest in the Middle East and North Africa lifting the price of oil to the $100-a-barrel range, analysts say pump prices are likely headed higher.
For drivers such as Robert Wagner, 51, a high-school teacher from Thornton, Colo., the higher fuel costs mean cutting back on movies and dinners out for him, his wife and their two children. “We’re very, very frugal right now,” he said as he trickled enough $3.09-per-gallon gasoline into his Chevrolet Suburban to get him to his next payday.
Analysts and economists worry that by lowering profits for businesses and reducing disposable income for drivers, high gasoline prices could slow the recovering economy.
Over a year, analysts estimate, oil at $100 a barrel would reduce U.S. economic growth by 0.2 or 0.3 of a percentage point. Rather than grow an estimated 3.7 percent this year, the economy would expand 3.4 percent or 3.5 percent. That likely would mean less hiring and higher unemployment.
Americans are less prepared to absorb the spike in gasoline prices than they were the last time prices rose this high, in 2008, because unemployment is higher and real-estate values are lower, says David Portalatin, an analyst for the market research firm NPD Group.
It has been four months since gasoline rose beyond $3 per gallon. In that time, drivers have spent $14 billion more on gasoline than they did a year ago, Portalatin says.
Diane Swonk, chief economist at Mesirow Financial in Chicago, says this year’s cut in payroll taxes offers consumers a buffer against higher fuel prices.
Still, she expects all but the wealthiest Americans to cut back on discretionary spending. And the longer prices stay high, the more damage they do.
Gasoline prices rose throughout last fall as the developing nations of Asia and the recovering economies of the West began using more oil.
In recent weeks, upheaval in the Middle East and North Africa stoked fears that oil supplies would be disrupted, and oil prices exceeded $100 per barrel for only the second time in history.
Tom Kloza, chief oil analyst at the Oil Price Information Service, believes that the normal seasonal rise in prices has been pulled ahead by events in the Middle East, but he still expects prices to rise further.
He predicts prices will reach $3.50 to $3.75 per gallon, barring more chaos in the Middle East.