Gas Prices Force Consumers To Make Choices In some parts of the country, the price at the gasoline pump has hit $4 a gallon. It's steep enough that it's changing consumers' buying habits. Economists are trying to figure out how much rising gas prices will hurt consumer confidence and consumer spending.
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Rising Gas Prices Force Consumers To Make Choices

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Rising Gas Prices Force Consumers To Make Choices

Rising Gas Prices Force Consumers To Make Choices

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STEVE INSKEEP, host:

It's MORNING EDITION, from NPR News. Good morning. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

Here's another expression of the law of supply and demand. When the global economy declined, the price of gas went down. Now that the economy is growing, the price of gas is rising again.

INSKEEP: And we may have to get used to the prices we have now - over $4 per gallon in some parts of the country. The Energy Department says it is likely to stay around $4 through the summer.

NPR's Chris Arnold reports.

CHRIS ARNOLD: Gas prices are expected to be nearly 40 percent higher this summer, compared to last year. And the higher prices are not going unnoticed at the Stan Hattoff's discount gas station in Boston.

Mr. OMERY VELAGOSHTI: It's not good for the people. This is very bad.

ARNOLD: Omery Velagoshti is filling up his car. He works doing a little food delivery for his son's family restaurant. And Velagoshti says he's been making at least some changes in response to the rising gas prices.

Mr. VELAGOSHTI: I go for shopping or just for coffee less than before.

ARNOLD: Oh, you mean just to save money on coffee? Is it because you need to spend more on gas, kind of thing?

Mr. VELAGOSHTI: Yes. For the gas is the problem.

ARNOLD: This is a big question that economists are trying to figure out right now. How much will rising gas prices hurt consumer confidence and consumer spending?

Ms. NANCY MORALES: Every weekend is like, nope, money for gas, not, you know, personal items.

ARNOLD: At the next pump over, Nancy Morales and her husband Luis are putting $50 in their old Jeep Cherokee. They run a small housecleaning business, and they've got their son in the backseat. And the family says they've been cutting back a bit, too.

Ms. MORALES: Yeah. We wanted to go to the fair. We wanted to go to Bonkers this weekend, and we have to put the price of Bonkers and the price of gas. Like, if we're going put gas in the car...

ARNOLD: What's Bonkers?

Ms. MORALES: Bonkers is like an indoor park, like a Chuck E. Cheese.

ARNOLD: Of course, blowing a little less money on pizza and videogames probably is not going to drag the whole economy down. But if hundreds of millions of people all start cutting back in significant ways, that could add up to big problems.

Peter Morici is an economist at the University of Maryland.

Professor PETER MORICI (Economist, University of Maryland): Whenever we pay more for gas, dollars leave the country to pay for imported oil. That's money that could be spent on U.S. products and, in turn, it slows demand, slows growth and jobs creation.

ARNOLD: So the economy has been doing better recently. The unemployment picture's improving. But Morici says rising gas prices will slow that growth, and it might even stop it.

Prof. MORICI: I can't predict recessions any better than anyone else. But I do know rising gasoline prices in a country that imports 10 million barrels a day is very detrimental to economic growth and can seriously threaten the recovery.

ARNOLD: Still, other economists are much less concerned. Nariman Behravesh is chief economist at the forecasting firm IHS.

Mr. NARIMAN BEHRAVESH (Chief Economist, HIS): At this juncture, the increase in gasoline prices, even to above $4 a gallon, is not a huge deal. Clearly, it is squeezing some households, especially lower-income households. But it's very different than what happened, let's say, in 2008, when the economy was already in recession.

ARNOLD: Back then, gas prices also hit $4 a gallon, and the country was just sliding into a historic financial crisis. Now the Federal Reserve says the economic recovery is, quote, "on firmer footing," so things seem to be in better shape. And, Behravesh says, at the end of the day, most Americans really don't spend that much money on gas.

Mr. BEHRAVESH: Average households spend about 5 percent of their after-tax income on gasoline. That has risen a little bit from about two percent a couple of years ago, when oil prices and gasoline prices collapsed. So it is higher, but it's not a killer. This is not something that's going to kill this recovery.

ARNOLD: Behravesh says everybody is very aware of gas prices. You have to stand there watching the cost tick up slowly as your tank fills and your wallet empties - same thing for some very visible food items. Prices are up for milk and beef. But overall, Behravesh says inflation has been very mild for all kinds of other things: some flat panel TV's, refrigerators, haircuts. Still, that said, he does not want to see gas prices rise much further.

Chris Arnold, NPR News, Boston.

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