Experts predict gas price hikes will be gentler
As the economy recovers, energy prices are rising and that is placing extra strain on families' budgets.
Each spring brings a familiar ritual in gasoline markets — rising prices — and this year won't be an exception. But motorists aren't likely to pay much more than $3 a gallon, on average, during the peak summer driving season.
Lingering effects of the recession, such as high unemployment, reduced shipping and limited business travel, are keeping a lid on energy demand in the U.S. And global oil supplies are on the rise. For now, these trends are providing energy markets with enough of a cushion to prevent geopolitical tensions from causing severe price volatility.
On Tuesday, the Energy Department's statistical arm predicted that oil prices would average $80 a barrel this spring, and rise to about $82 a barrel by the end of the year, influenced by robust growth in China. This is consistent with the agency's past four monthly outlooks. Last year, oil prices averaged about $62, trading in a range between $33.98 and $82.66.
The average nationwide price for regular gasoline was $2.76 a gallon on Tuesday. Because of the anticipated bump in crude prices, the government estimates that gasoline prices will average $2.84 a gallon this year, up from $2.34 in 2009. It's enough for families to take notice, economists say.
Gasoline accounts for about 4 percent of the typical family's budget. But consumers tend to pay the increase at the pump instead of driving less. That leaves less to spend on clothing and other discretionary purchases.
Sung Won Sohn, an economics professor at the Smith School of Business at California State University, lowered his forecast for U.S. economic growth to 3 percent, from 3.2 percent, because of the anticipated rise in energy costs.
"Higher gasoline prices are like a tax that depresses overall consumer spending," he said.
A recent government report showing that incomes edged up only 0.1 percent — the weakest showing in four months — raised concerns about whether consumers will be able to keep spending at a strong enough pace to support an economic rebound.
