Most energy analysts argue that gas prices won’t rise to $5 a gallon. However, some analysts claim that this figure, a 28 percent increase, is a real possibility. According to the AAA Daily Fuel Gauge Report, the average price now stands at $3.91 per gallon for regular unleaded gas. Over the past year, gas prices have increased by 36 percent. A question arises: If we reach the $5 mark, will US economic growth suffer the consequences?
Federal Reserve Chairman Ben Bernanke said Wednesday that “Our view is that gas prices will not continue to rise at the recent pace.” He added, “And as prices stabilize or even come down, if the situation stabilizes in the Middle East, … that will provide some relief on the inflation front. But we’ll have to watch it very carefully.”
What factors predict and reallocate gas prices? Contributing factors include demand growth in emerging-market economies, political events in oil-producing nations, and speculative activity by commodity investors.
Now let’s take a short, hypothetical visit to Wall Street. On Friday morning, oil was trading just above $113 a barrel. If oil increases to $123 dollars a barrel, gas prices will increase by 25 cents per barrel. Using this method of calculation, gas prices would reach $5 per gallon at approximately the $150 mark.
Bernanke said that the recent surge in gas prices has acted as a “double-whammy” for the economy, increasing inflationary pressure and “draining purchasing power from households, higher gas prices are also bad for the economic recovery.” Still, he isn’t terribly worried. And if Ben Bernanke isn’t terribly worried, why should I be?