It doesn’t take a colorful graph provided by the Energy Information Administration to tell the average motorist that gasoline prices have been rising since the beginning of the year, but the chart below does give us a concise look at how prices have surged in recent months.
As of June 8, 2009, regular gasoline averaged $2.62 per gallon. That’s up 10 cents from a week ago but down $1.42 versus one year ago.
The big drop from last year’s peak of over $4 per gallon shouldn’t be dismissed and is probably helping some at the margin because it increases disposable income, but the rise from last year’s low and further gains are unlikely to snuff out any burgeoning recovery.
Let me explain. Economists have said that for every penny increase or decrease in gasoline prices, the nation’s gasoline bill will rise or fall by $1 billion.
So it’s safe to say that falling prices act like a tax cut just as rising prices act like a tax increase.
At the margin higher prices could have an impact on discount retailers that cater to lower income folks and those looking for work. When prices were rising earlier in the decade, we did get comments from some of these companies that higher prices at the pump did impact sales. Furthermore, the economy is more fragile today.
However, the government reported that personal spending in April totaled $10.3 trillion dollars. And nominal GDP exceeds $14 trillion.
Higher prices are definitely a big nuisance since I believe we all want to pay less when we fill up our autos. But when tens of billions of dollars are compared to $14 trillion, we’re looking at less than 1% of total GDP.
For another look at rising oil prices, please see Oil Pops Above $71 per Barrel on Examiner.com.
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