Thursday, February 17, 2011

Will Gas Prices Choke Off Recovery?

From Marketwatch:

Treasurys pared an early loss after a report showed U.S. retail sales rising 0.3% last month, less than analysts expected. The Commerce Department said that excluding autos, sales rose 0.3% as well on the month — also disappointing analysts. See story on retail sales.

“Weather is likely to have taken its toll on some areas of spending,” said economists at RDQ Economics. “One theme, however, is evident in this report: Rising gas prices are taking a bite out of consumer spending power, judging by the fast rate of increase in gas-station sales.”

I think last months retail sales report was more of a weather related event than an oil prices event. But that doesn't mean we won't see gas prices start to retail spending at some point.

Consider that in conjunction with this chart of gas prices:

Interestingly enough, oil prices are down this week, despite the turmoil in the Middle East. However, how long will that lack of correlation last? In addition, we're a few months out from the summer driving season, when oil prices naturally rise.

I would add that I would rather have gas prices increases slowly but consistently (for example, a few cents every two weeks) rather than a sharp increase, as the former allows a slow absorption of the price increases and prevents the shock associated with a massive price spike.