The recent winter blast across much of the country will only continue the recent trend in energy prices that are putting pressure on an already squeezed American consumer. After dropping dramatically in the latter half of 2008, energy prices, led by oil have, have rebounded significantly aided by a weak dollar.
The increases have been significant, and perhaps more so now than in 2008, in regards to the impact on discretionary consumer spending. Let’s look at recent moves in the past year. Oil, which bottomed at $35 in December of 2008, has now, without much fanfare from the administration or the talking heads on TV, climbed to over $80 per barrel. Crude oil imports averaged about 8.5 million barrels per day in the latter half of 2009.
The result has been that gas prices have made a huge move upward to nearly $2.20 per gallon wholesale in the past year from a low of $.82 a year ago. This is closing in on a 200% increase in just over a year. According to the EIA, we use about 380 million gallons/day in gasoline. Just in direct costs to the consumer, that’s a huge cost increase in the past year when many are already stressed financially. That’s $456,000,000 per day increase out of the US consumers pockets. That’s a lot of discretionary income up in smoke daily. This doesn’t include indirect costs for food products, transportation costs of products, electricity, etc.
Natural gas prices, which were the lone bright star in energy costs through the end of summer have spiked from a low of $2.65 in September to close at nearly $6 yesterday. Though at least our supply situation is much better in nat gas, as more users switch, primarily many of the utilities and recent winter weather, have caused a serious spike in prices in just the past 30 days. So when you factor in that many of the newer homes built in the past decade use natural gas for heating, that’s another hit to the consumer as well as those who use other forms.
Increasing energy prices are one of the most regressive taxes on consumers, affecting those who can least afford them the most significantly, yet not a peep out of anyone in the current administration, who have purposely pursued a weak dollar policy in order to cover our growing indebtedness. We’ve seen a definite move upwards in longer term interest rates the past 30 days which have a direct effect on mortgage rates.
So my question is, who and what is going to lead this economy out of recession, as unemployment remains high, foreclosure levels are at record highs and will probably continue, see here, and now a further squeeze as energy prices are once again seriously affecting consumers pocketbooks. Yet no one is even talking about the effect that these energy prices are actually having on the consumers. The Fed, led by Ben, says they’re keeping an eye out for inflation. I suggest they go to the grocery store and stop on the way home for a fill-up at their local gas station.