Will rising gas prices hurt less this time?
Gasoline prices are a moving target, and of late they have been heading north at a nearly unprecedented clip.
Nationally, the average price of a gallon of gas on Monday was $3.70, an increase of about 16 cents from the previous week, according to AAA. In cost leader California, prices zoomed up nearly 26 cents in a week, to $4.29 a gallon for self-serve, according to the Los Angeles Times. That’s about 57 cents higher than one year ago.
The price in San Francisco was about $4.34. USA Today reported that drivers near Disney World in Florida were paying as much as $5.89 a gallon. Ouch.
Prices at the gas dock vary as widely as they do at gas stations. The highest may be on Catalina Island off California, where a gallon of gasoline and diesel was in the neighborhood of $6.85, according to the fuel website MarineFuel.com, of Stuart, Fla. Prices in Florida ranged from $3.73 to $5.95 for gas and $3.49 to $5.95 for diesel, according to MarineFuel.com.
The concern, obviously, is about the impact of rising fuel prices on consumer spending and the nascent economic recovery at large. In the marine world, higher gas and diesel prices certainly won’t help declining registration numbers, but there is evidence from our automotive brethren that the effect of this latest spike may not be as great as in 2008, when most of us were left holding our breath as prices soared.
The Wall Street Journal reports that the effect of this most recent escalation on Detroit, for instance, will be moderated by the shift away from SUVs and light trucks to more fuel-efficient cars and “crossover” vehicles.
Oil expert James Hamilton, a professor of economics at the University of California, San Diego, has written in his Econbrowser blog that because of the very high gasoline prices we saw in 2008, U.S. car-buying habits did not go back to earlier patterns, meaning buying bigger cars and trucks. Therefore, he notes, $4 gasoline won’t have the same disruptive effect today that it had the first time we experienced those prices in 2008. (Higher gasoline prices, however, are cited as one reason Americans are driving less.)
Also worth noting is Hamilton’s rule of thumb regarding the relationship between the price of crude and gasoline. For every $1 increase in the price of a barrel of crude, Hamilton says, consumers are likely to pay 2-1/2 cents more for a gallon of gasoline.
The Journal story also cited work done by three economists who looked at detailed auto sales data from 1999 through the middle of 2008. What the trio found was revealing. A $1 rise in a gallon of gasoline increased by 21.1 percent the market share of new automobiles with top-quartile fuel economy. Conversely, the market share of vehicles whose fuel efficiency is in the bottom quartile declined 27.1 percent when the price of a gallon of gas went up a buck.
With a bit of rhetorical flourish, we have the following suggestion from a petroleum analyst with a company called GasBuddy.
“Motorists who drive an SUV may want to consider calling their banking institution and obtain a credit limit increase so they can afford this summer’s fuel expenses,” wrote Patrick DeHaan, a senior petroleum analyst at GasBuddy, which gathers and pushes out via the Web near real-time gasoline price data.
Gas Buddy is forecasting that prices will peak in May, when the median price of a gallon of gas will reach $3.95. “Consumers who think the Iran situation is over-hyped clearly don’t understand the high stakes behind not only the Strait of Hormuz but behind Iran’s feud with the West,” DeHaan writes.
As irritating and impactful on household budgets as this latest increase has been, folks have gotten hardier about these episodes — and the prices. There is less surprise. We’ve been here before. Did anyone think prices were never going to spike again? Anyone think this one will be the last?
“Consumers are not as concerned with the current level of gas prices as they were in past episodes,” Credit Suisse economist Jonathan Basile was quoted as saying in a report.
So the mix of vehicles rolling out of Detroit today is much more balanced than it was several years ago, which should help mitigate the impact of oil shocks on that key industry and, as a result, the U.S. economy as a whole. That’s good news.
What about boats? This latest jump in prices will, in all likelihood, continue to support the broad downsizing trend we’ve seen since the start of the recession. Given the pent-up demand out there, might it also cause owners of older boats powered by less-efficient iron to buy new boats and less thirsty power plants?
The Journal suggests it might happen with autos. “Given how much better the mileage is on new cars than the old heaps they are driving, rising gasoline prices might even prompt some consumers to get off the fence,” the newspaper wrote.
That’s a silver lining.