Will Gasoline Become a Luxury?

The national average gallon of the cheap stuff has risen 41 days in a row, to $2.62 a gallon. That’s a $1 rise, or 61%, from the average price at the start of 2009. Certainly enough to scuff the luster off those economic “glimmers of hope,” don’t you think?


“This hits everyone,” famous Yale economist Robert J. Shiller told the NYT. “It has the potential to affect your confidence.” According to Shiller, a few months at these prices could offset President Obama’s new $400-800 middle class tax cut. The Oil Price Information Service claims today’s gas prices costs consumers $400 million more every day compared to January’s ultra-low prices.

Will it go higher from here? If oil’s price is any indicator, maybe. While gas prices are up 61% from their lows, crude oil has more than doubled.

“Consumer behavior has changed,” writes Dan Amoss. “The typical basket of consumer goods is also changing. Most consumers are smart and adaptive and realize they need to save a lot more out of their paychecks, and will do so despite the government currently encouraging as much spending and risk taking as possible. This trend will last for years, and we should not underestimate it.

“Consumers will still spend more wisely on things that provide good value, and on affordable luxuries like gasoline (the talking heads still underestimate how strong gasoline demand will remain throughout this recession). Yes, I consider gasoline a luxury, and more probably will as the rest of the developing world increases gasoline consumption — recession or not. Governments are printing money and running deficits, and as long as this is happening, this new money will chase goods that every human demands — like refined oil products.”

The Daily Reckoning