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Pump Prices No Setback To Recovery

gas_signIf gas prices over 4 dollars a gallon aren’t pumping you up about the state of the economy, Kimberly Ritter-Martinez, Associate Economist from the Los Angeles Economic Development Corporation, says don’t pay too much attention to those doomsayer headlines.

 

“I’ve seen headlines where they say ‘Higher gas prices could derail economic recovery’. I think it may slow growth in the short term just because of the effect it will have on consumer spending, but I don’t think it will derail the economy in any significant way or send us back into recession,” said Ritter-Martinez (below).

Kimberly_RitterSince consumer spending is 70 percent of the U.S. economy, Ritter-Martinez admits for many family budgets higher gas prices could at least curtail discretionary spending.

“Obviously this is going to hurt people who live paycheck to paycheck a lot more than people living in higher income brackets. If you’re spending more on gasoline that means you’re going to have less money to spend on other types of items,” Ritter-Martinez said.

What most consumers would like to know is why California leads the nation in pump prices.

“Part of that is because we have the second highest tax rate on our gas in the nation. We’re just behind the state of Washington in terms of the amount of taxes we pay on gas.


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We also have some pretty strict environmental laws, so California requires cleaner burning fuel year round,” said Ritter-Martinez.

According to Ritter-Martinez, California pays an excise tax of 35.3 cents per gallon. In Colorado it’s 20.5 cents. Alabama charges 16 cents and Alaska drops all the way down to 8 cents.

“And then on top of that that there’s local sales taxes you have to pay as well,” Ritter-Martinez said.

gas_stationWhich has people fuming about fumes.

If you feel like you’ve just suffered a stick-up at the end of a gas nozzle, Ritter-Martinez says it’s not about demand in the U.S driving up prices. In other words, it’s not how you act locally, but think globally.

“You have to consider countries like China and India, where their incomes are increasing and you’ve got more and more people in those countries wanting to drive. That probably has bigger effect on demand than what’s happening here in the United States,” said Ritter-Martinez.

Believe it or not, Ritter-Martinez sees a ray of sunshine through the gloom.

“Luckily inflation for other types of products is going to be pretty low for 2012. We’re not expecting to see higher prices for the other sorts of things that we buy. So we’ll just have the rise in gasoline prices to contend with,” said Ritter-Martinez.

Good news as you bicycle to the grocery store.

gas_pumpIf you’re brave enough to want to see the US Energy Information Administration’s timeline of gas prices for the last month compared to last year, click here.