Tags: economy | Gasoline | prices | Recovery

Experts: Pricey Gasoline Threatening Recovery

Monday, 19 March 2012 07:53 AM

Gasoline prices are rising to the point they are threatening the pace of economic recovery, as many consumers are cutting spending elsewhere to fill up their cars, experts say.

Nationwide, gasoline prices are averaging close to $3.84 a gallon, according to the AAA fuel gauge report, with some parts of the country already above $4 a gallon.

Consumer spending drives the U.S. economy, and more spent on gasoline means less spent elsewhere. 

Editor's Note: Meltdown on Main Street Coming, Prepare Now

The good news is that prices won't stay high for long at least in the U.S., as consumers will buy less fuel and send prices falling.

"If gas keeps going up at this pace you're going to get to a point fairly soon where demand destruction begins to occur," says Dan Greenhaus, chief global strategist at BTIG in New York, according to CNBC.

While demand for oil in growing economies like India and China are behind rising prices at the pump, ongoing tensions between the West and Iran are to blame as well.

Take out the Iran factor and prices could ease a bit.

"Assuming that the situation calms in the Middle East, the supply-demand curve does not suggest prices will stay where they are," says Michael Yoshikami, CEO and founder of Destination Wealth Management in San Francisco.

"If they do it's going to eat into the recovery."

Gasoline prices are sending overall inflation rates upward.

The U.S. the consumer price index rose 0.4 percent in February from January, the largest increase in 10 months mainly due to more expensive gasoline, the Labor Department reports.

The government's core inflation rate, which is stripped of volatile food and energy prices, rose only 0.1 percent.

"The great news is that nearly all the categories in the core were well behaved. The message here is we continue to have the complete absence of the price pressure given the slack in the economy," says Anthony Karydakis, Senior U.S. economist at Commerzbank AG in New York, according to Reuters.

"Looking ahead, the upward pressure on gasoline we have seen in March has set the stage for another strong rise in headline inflation."

Editor's Note: Meltdown on Main Street Coming, Prepare Now

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Monday, 19 March 2012 07:53 AM
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