Monday, February 28, 2011

Getting robbed at the gas pump?

By Frank McGuire and David A. Patten

Rapidly escalating gasoline prices may push the nation back into a recession as scared Americans cut back on spending, economists warn. Each 1-cent increase in gas prices is the equivalent of a $1.2 billion “tax” on Americans, one economist says — and that figure would compute to $31.2 billion during the past month alone.

David Kotok, chairman and chief investment officer at Cumberland Advisors, warns that the growing risk of civil war in the Middle East oil patch is very likely to mean a quick end to a U.S. recovery.

Kotok offered the $1.2 billion “tax” figure to his clients in a note. Because a dollar rise in the barrel price means a 2.5 cent increase in gasoline, expect gas to cost between $4 and $5 soon, he warns. Consumers are already getting hit with sharp increases in food prices.

Analysts and economists worry that high gasoline prices could slow the recovering economy by lowering profits for businesses and reducing disposable income for drivers.

Robert Wagner, 51, a high-school teacher from Thornton, Colo., the higher fuel costs mean cutting back on movies and dinners out for him, his wife and their two children. "We're very, very frugal right now," he told the AP.

A gallon of regular gasoline jumped another 8.1 cents during the weekend to a new national average of $3.37 a gallon, according to AAA, Wright Express, and the Oil Price Information Service. Gasoline now costs 26.7 cents a gallon more than it did a month ago, and 66.4 cents higher than its price on year ago.

Read more on Gas Price Spike Propels Double-Dip Recession Fears

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