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Tags: Gasoline | Prices | lower | stimulus

Economist: Lower US Gasoline Prices Are Just Like Economic Stimulus

Friday, 15 June 2012 11:42 AM EDT

Falling gasoline prices have the same effect on the economy as a tax cut or government stimulus measures, economists say.

The average U.S. price for a gallon of gasoline has fallen 40 cents, or 10 percent from a 2012 peak near $4 a gallon in early April, CNNMoney reports.

U.S. motorists will consume an expected 133 billion gallons of gasoline this year, which means the 40-cent price break equates to $53 billion in annual savings if it were to stay in place for a full year.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

"Just as an increase in gas prices is essentially is a tax on consumers, a decrease in prices acts as a tax cut," says Brett Ryan, economist with Deutsche Bank, CNNMoney adds.

Tensions with Iran sent gasoline prices soaring earlier, yet talks among world leaders with Iranian delegates to diffuse the standoff over Tehran's nuclear ambitions have sent prices falling.

A cooling economy has curbed demand for fuels as well, which may be good for household finances in the U.S. but overall, the country needs more demand and growth to create jobs and finally break out of current doldrums.

"A drop in gasoline prices obviously helps with consumer finances", says Bernard Baumohl of the Economic Outlook Group in Princeton, N.J., CNNMoney adds

"However, even with the drop in gasoline prices, consumers don't seem as much in a spending mood as they were earlier this year."

The latest consumer confidence figures, meanwhile, indicate U.S. households are growing increasingly worried over the fate of the country.

Consumer demand drives 70 percent of the U.S. economy.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 74.1 in June from to 79.3 in May, Reuters reports.

The number fell short of a 77.5 reading predicted by a Reuters poll of economists.

"Income losses were reported by nearly one-third of all households in early June and the news reaching consumers about job prospects turned negative for the first time since late 2011," says survey director Richard Curtin, Reuters reports.

"In addition, a small but rising number of consumers reported their concerns about the fallout from Europe, the most that mentioned the potential domestic impact from an international crisis since the Asian flu in 1998."

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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Friday, 15 June 2012 11:42 AM
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