Washington Inflation remains tame throughout the U.S. economy, with one big exception: gas prices.
Those higher prices haven’t derailed a steadily improving economy. But if they surpass $4 or $5 a gallon, experts fear Americans could pull back on spending, and job growth could stall, posing a potentially serious threat to the recovery.
And the longer prices remain high, the more they could imperil President Barack Obama’s re-election hopes.
A few weeks ago, economists generally agreed that the economy was in little danger from higher gas prices as long as job growth remained strong. But fears are now mounting that gas prices could begin to weaken consumer confidence.
The average pump price nationwide is $3.83 a gallon. Energy analysts say it’s bound to climb higher in the weeks ahead.
“It’s a thorn in the side of the consumer and businesses,” said Chris Christopher, an economist at IHS Global Insight. The economy this year “would have been better and stronger if we didn’t have to deal with this.”
So far, higher prices aren’t undermining the economic recovery, which is getting a lift from strong job creation. It would take a big jump — to around $5 a gallon — before most economists would worry that growth would halt and the economy would slide into another recession.
That’s because an improving economy is somewhat insulated from any threat posed by higher prices at the pump.
The risk is that gas prices could eventually slow growth by causing some people to cut spending on other goods, from appliances and furniture to electronics and vacations. Gasoline purchases provide less benefit for the U.S. economy because about half of the revenue flows to oil-exporting nations, though U.S. oil companies and gasoline retailers also benefit.
Many American businesses suffer, too. They must pay more for fuel and shipping and for materials affected by high oil prices, such as petroleum-based plastics. Profit margins get squeezed.
Even if prices ease after the summer driving season, don’t expect gasoline to fall below $3 a gallon.