Wednesday, October 28, 2009

Consumers Facing Rising Gas Prices – Again

Bad news for the already fragile U.S. consumer – gas prices are on the march again. They mostly drifted sideways throughout the summer during the initial stages of the economic recovery, but they’ve climbed to $2.68/gallon over the past few weeks (using the AAA Daily National Average Gasoline Price from Bloomberg). Last year’s rollercoaster ride is probably still fresh in most drivers’ minds, when crude oil soared to $145/barrel and pump prices rose to over $4/gallon during the summer, only to collapse to $1.62/gallon by December as economic activity ground to a halt.

It’ll be worrisome if the recent rise continues, since consumers are already struggling under the weight of several well-documented issues, including rising unemployment, falling home prices, restricted access to credit, and falling wages. Now, they again face the prospect of higher gas prices, as businesses bring more and more idle resources back online, causing demand for commodity inputs to increase. U.S. consumers have certainly proven to be a resilient bunch for a long time, but they are being challenged mightily at present. It will not be a welcome development to see gas prices surge appreciably higher, since they effectively act like a tax by siphoning off additional dollars that consumers are already being more discerning about as they tighten their belts in the current environment. A surge in energy and other commodity prices similar to last year’s is on our list of risks to watch for that could short-circuit the economic recovery.