By Robert Romano — Since the beginning of the year, gasoline prices have spiked upward dramatically from about $3.25 a gallon to about $3.83, or about $.00725 a day, according to Gasbuddy.com.
And if they continue at that rate, they will top $4 a gallon by about April 13, and certainly in time for Memorial Day — when the summer driving season really heats up. The highest they ever reached was $4.11 a gallon nationally in 2008.
2012 may be the year that previous record is tested. Some states like California and New York, which have higher gas taxes, are already above the $4 mark and pushing $5.
But even if prices don’t get that high nationally, and merely remain where they are now, Americans will still be paying a whole lot at the pump.
In fact, 2011 and not 2008 was actually the worst year on record for high gasoline prices, with an average price of $3.576 per gallon. That was much worse than 2008, when prices only reached $3.299 a gallon on average, according to the Energy Information Agency.
The reason is because while the price of oil rose precipitously throughout 2008, it also fell dramatically. Whereas now, the high prices of oil are more persistent year round, resulting in higher average prices at the pump.
That means in 2011, the average American motorist spent about $2,400 on gasoline for the entire year, with about 20 miles per gallon and driving about 13,476 miles a year. That was almost $200 more than 2008, when Americans spent about $2,222 on average.
And it’s substantially more than they paid in 2009 and 2010, when they only spent $1,620 and $1,910, respectively. Compared to 2009, Americans paid an extra $65 a month on gasoline in 2011.
For family budgets already stretched thin, an extra $65 a month being forced into gasoline will inhibit other decisions to spend money elsewhere. Therefore, the higher average price of gasoline will hurt economic output in other sectors of the economy, particularly by constraining consumer spending.
But it will also lead to increases in producer prices, resulting in higher prices across the board, particularly for goods and services that require transportation to be delivered.
Already the consumer price index, including food and energy, has risen 2.9 percent in the last 12 months. Producer prices rose all throughout 2011, and are still rising in 2012.
While some point to supply constraints or demand pressures on oil prices as the cause, that does not tell the whole story.
Is supply constrained and demand rising rapidly in every single class of commodity? That makes little sense, when one considers that commodities are largely traded and priced in dollars, and the supply of dollars has rapidly been rising since the financial crisis of 2007-08.
For example, food too reached a record high in 2011, according to the Food and Agricultural Organization of the United Nations, and is once again rising in 2012 after dipping at the end of last year.
When commodities rise and fall in unison like that, it indicates wider movements in the value of the dollar itself. When the dollar is weak, it tends to put upward price pressures on a range of commodities including food, energy, and metals.
Something to keep in mind as you fill up your gas tank this week. As Milton Friedman once observed, “Inflation is always and everywhere a monetary phenomenon.”
Robert Romano is the Senior Editor of Americans for Limited Government.
