We have been busy following the situation in Greece, preparing for another (sell the news) Fed (non) event, watching SHIBOR rates surge in China, but what about the gasoline prices. With summer vacations around the corner, people will feel the Gas Pain. Gallup reports;
In the U.S., the average price of a gallon of gas is $3.78 — down 12 cents from early May, but up $1.06 from a year ago. And Americans are feeling it: 53% say they’ve made “major changes,” and 67% say increases in the price of gas have caused them financial hardship, according to a May 18 Gallup Poll.
This may sound familiar. Americans have been down this road before. Gas prices have fluctuated for years, and many Americans and businesses suffer each time the price of gas reaches a new high — and so does the U.S. economy.
But according to Dennis Jacobe, Ph.D., Gallup’s chief economist, it doesn’t have to be this way. In the following conversation, Dr. Jacobe explains why gas prices are so high, why they fluctuate, and why it’s not an accident. The situation is controllable, though — but only if Americans agree to a rational, though surely controversial, compromise.
GMJ: Gas is at $4 a gallon. Who’s to blame?
Dennis Jacobe, Ph.D.: That’s a complicated story. There are several forces involved. The unrest in the Middle East, the falling value of the dollar, Europe’s financial problems, and sharply increased demand from China and India all tend to play a role. That’s because oil is now more than a commodity; it’s an investment vehicle. That in turn creates speculation, which is not necessarily related to oil’s short-term supply or demand. And some of this affects the way gas and oil is priced internationally and the condition of the global economy.
Gas prices tend to respond to international oil prices. And those prices, in turn, tend to reflect the health of the global economy and speculation around the world about future supplies of gasoline and oil and how willing Americans may be to tolerate higher prices.
GMJ: Is that a sign that the global economy is getting stronger?
Dr. Jacobe: Normally, that’s what you would think, and it’s one of the major issues we face: Do gas prices automatically go higher when the global economy strengthens? And does that effectively create an automatic brake on the ability of the international economy — and particularly, the U.S. economy — to grow? It’s a possibility, and it’s a big concern. We know that there’s a point at which prices at the pump cause a shock effect.
Full article, Solution to High Gas Prices