The U.S. Department of Energy's top forecaster expects gasoline prices to climb an additional 20 cents a gallon by December and said prices could go still higher if OPEC doesn't increase production.
The estimate came as mixed signals on the intentions of the Organization of Petroleum Exporting Countries contributed to a drop in oil prices on futures markets. The drop, coming after several weeks of new oil-price highs, signals increasing volatility in oil markets as the price has approached $100 a barrel.
Yesterday, the national average retail price for a gallon of regular gasoline was $3.10, according to the AAA, formerly the American Automobile Association. Guy Caruso, who heads the department's Energy Information Administration, said the price of gasoline will continue to rise even if crude oil prices don't because the past jump in crude prices hasn't been fully passed on to gasoline consumers by oil refiners.
I'm not a big fan of economic forecasting. I'm more of a "try and discern the basic trend and then move on" kind of guy. It's no insult to forecasters; I just don't think a system as complex as the US economy can be shoved into a computer model and then predicted with any degree of accuracy.
However, this article does make a basic point that I think is incredibly relevant right now. It's mid-November. We're 2-3 weeks out from the official beginning of the Christmas shopping season. And gas prices are a lot higher then they were last year. Here is a chart from This Week in Petroleum.
Notice that gas prices are at least 80 cents higher this year than they were at the same time last year. That should cause some concern.
Here is a chart of oil for the few years. Notice that oil is about $30/bbl higher this year than last. That means that prices at the pump have a strong possibility of moving higher as Christmas gets closer.
Add to that:
For one thing, people's cost of living is soaring. Most households are suffering from a vicious combination of higher food and energy prices and the skyrocketing cost of health care.
Consumers' buying power has failed to keep pace with the rising cost of these essentials - and this includes the past year, when job creation was strong and the unemployment rate dipped to as low as 4.4%.
However, by October of this year, there were fewer people at work (as measured by the household survey) and only a jump in the number of people leaving the labor force kept the jobless rate steady at 4.7%.
To make matters worse, the value of people's two biggest assets, their homes and their investments, are falling. Many households have little or no savings to fall back on, having spent more than they have earned for at least the past two years.
As for borrowing, forget about it! The credit squeeze has made banks increasingly wary of lending money - not just to consumers, but to businesses as well.
I've counted out the US consumer before and found out the hard way that Americans love to shop and will do anything to keep on shopping. That just seems to be the way we are.
But, it's also important to note the general macro-environment this holiday season is the worst we've had in a long time. And that could make this season different.
