$4-a-gallon gas: What effect would it have?
Published: Wednesday, January 19, 2011 at 8:54 p.m.
Last Modified: Wednesday, January 19, 2011 at 8:54 p.m.
Gas prices that already have topped $3 a gallon could approach $4 by summer if past trends hold — forcing consumers, businesses and governments to cut spending in other areas, raising prices on a broad range of consumer goods and slowing an already sluggish economic recovery.
Based on average annual increases, prices could rise to $3.75 a gallon of regular unleaded on average nationwide, topping $4 in 15 states, including $5.01 in Alaska, according to the Oil Price Information Service.
Florida would average $3.88 under that scenario, meaning Gainesville — where gas stations pay more than most Florida counties in shipping surcharges because of the city's distance from ports — would be closer to the $4 mark.
The average household spends an extra $500 a year for a $1 increase in gas prices and reduces spending on other items by $250, said David Denslow, economics professor at the University of Florida.
That would mean less impulse spending, said Allen Crabtree, general manager of Sears at The Oaks Mall. The first industries to feel it would be restaurants and entertainment, he said.
"It just takes disposable income — ‘I've got an extra $50 in my pocket. Let's go out to eat.' Now it's going to go in the tank," he said. "It can bring our recovery to a standstill because people aren't making that kind of money now anyway."
Costs on his merchandise at Sears wouldn't go up unless the higher prices held for several months, Crabtree said.
Groceries and other consumables would see a more immediate price increase from the added shipping costs.
Ward's Super Market buys a lot of Florida produce at this time of year, so the effects would be minimal, but by summer when gas prices are typically highest, produce production moves to California.
Produce Manager Craig Smouse said Ward's can partly offset price increases by buying directly from growers and buying in larger quantities. If the weather cooperates, the grocer also can buy cabbage, zucchini, squash and eggplant from closer states.
"Weather almost has as much effect as gas, sometimes more," he said.
Prices already are high on corn, green beans and cabbage as a result of Florida freezes and gas prices but should stabilize in two to three weeks without another freeze.
Customers respond to higher prices by buying cheaper alternative varieties of products such as lettuce and tomatoes, or switching to frozen and canned goods that have prices that were locked in earlier in the year.
Sales of large diesel trucks are still down from the last time gas hit $4, in 2008, because of an expectation that prices will go back up, said Andy Johnson, general manager of Gainesville Chrysler Dodge Jeep.
"We've got a lot of fuel-efficient cars coming out. Hopefully we'll be ready for it this time," Johnson said.
The dealership sees more service business when gas prices rise so drivers can get maximum mileage out of their autos, Johnson said.
Aaron Bosshardt, president of Bosshardt Realty, said high gas prices would just add to the uncertainty faced by people worried about their jobs. A lot of would-be buyers instead are renting now, he said.
Higher gas prices would be more detrimental to commercial real estate already faced with a lot of vacancies, he said.
A variety of international market factors — mainly economic growth in China, India and Latin America — have driven oil prices up more than 30 percent since May. Some economists say rising energy prices will slow economic growth, The Associated Press reported.
"This is about the worst time for (a rise in oil prices) to happen because we're already suffering from high unemployment and sluggish economic growth," Denslow said.
He pointed out that the same factors driving up oil prices also are driving up other commodities such as copper and other metals used in electronic devices.
Florida, meantime, would see another slowdown in tourism.
An already struggling state government can expect lower revenues from gas taxes as drivers cut back on gas and about $7-$8 less per household annually in sales taxes from cuts to other purchases, Denslow said.
"The effect on the state budget is harmful, but it's not devastating," Denslow added.
Other factors actually could help offset gas price increases, Denslow said. Larger natural gas supplies should hold down the price of petroleum, and American companies hiring cheaper overseas labor holds down prices on other goods.
More informed consumers who use the Internet to compare prices also reduce retailers' pricing power, he said.
Oil companies would be about the only businesses to benefit from higher gas prices, Denslow said. Gas stations earn their margin on gallons sold, not prices, and make less when customers cut back on miles and don't buy as much inside merchandise.
U.S. gas prices averaged $3.10 a gallon last Thursday, including $3.12 in Florida and $3.17 in Gainesville.
JCPenney General Manager Scott Boyer said he hasn't heard a lot of complaining about gas prices slowly creeping up.
With employees from Trenton, Williston and Starke, he said they might consider scheduling more hours on fewer days so they can save on commuting costs.
But in general, Boyer said, "I think they've conditioned us a little bit to accept it. It's now $3.16, and you don't hear anybody screaming."
Anthony Clark is the Gainesville Sun business editor.