Tuesday, June 7, 2011

Gas prices back above $4.00/gallon in metro Detroit

Last week, I mentioned in passing that gas prices had risen above $4.00/gallon again. It looks like it's time to revisit this subject. Take it away WXYZ-TV!

With gas prices dropping in other parts of the country, people in Michigan are wondering why our prices are staying so high.

That was a couple of days ago. Below is what the Oakland Press had to say today.

Temperatures and gas prices both climbing
Of The Oakland Press
Very hot temperatures this week will make Oakland County residents and utilities happy they have or provide air conditioning, but not too thrilled we live in an area without effective mass transit.
Nice opening and good point about the lack of good mass transit, as Detroit is the most populous metropolitain area in the U.S. without light rail. Instead, we have two bus systems that don't play well with each other and have some major gaps in service. They're also very inefficient, as takes hours to go by bus from Southfield to the county government complex north of Pontiac, a trip that takes just over half an hour by car. Unfortunately, that's the last time Mr. Wolffe brings up the deficiencies in mass transit in this article.
Temperatures by mid-week will soar to the mid-90s with a high Wednesday of 90-94 forecast by the National Weather Service.
This will make it easier for me to convince my students about the reality of climate change, despite my insistence that weather is not climate.
Meanwhile, AAA-Michigan said gasoline prices rose 16.9 cents just during the past week to average $4.10 in the Oakland County driving area.

The $4.10 average compares with $2.73 a year ago. The statewide average was $4.12 or up $1.37 from last year during the first week of June.

For Oakland drivers, gasoline prices have climbed 50.18 percent during the past 12 months.
So much for gas prices falling below $4.00 and staying there, at least in Metro Detroit. The current trend might make my prediction that gas will hit its peak price this year (I expected $4.50/gallon, but never got around to posting it here until now) July 4th come true, although I doubt it. I don't think that gas will get that high, and certainly not to the $5.00/gallon figure, unless the dollar completely crashes, something I don't expect to happen unless the federal government defaults, and that shouldn't happen until August.

Just the same, a 50+% rise in one year is enough by itself to cause the economy to slow down, which is exactly what's happening according to James Hamilton at Econobrowser.
Incoming data over the last two weeks paint a consistent picture that the U.S. economy, which had been growing at a disappointingly slow rate, has weakened further.

The national income and product accounts updated last week by the BEA suggested that first quarter GDP growth was even weaker than previously indicated.

And the second quarter may be starting out even worse.
As for the effect of rising and then falling gas prices, Hamilton has both good and bad news.
Although I don't believe that the recent high gasoline prices have produced the same kind of recessionary impulse that they did in 2008, they're undoubtedly one contributing factor in the recent weakening. Here there's some good news. I predicted on May 8 that we could see U.S. retail gasoline prices fall by 40 cents a gallon. Since then they've come down about 20 cents, and I still think we'll see a further 20-cent drop in the weeks ahead.
The national price decline doesn't help here in metro Detroit, where, as you've seen, the price is bucking the trend. Instead, it's causing problems, as Wayne State has already noticed.
Most notable in this month's report is what appears to be inflation in the raw materials markets. The commodity price index slipped slightly from 86.7 to 83 during the past month, but the 82.7 three-month average points to an inflationary environment that may also reflect the steep increase in fuel costs over the past six months.

"With the sharp increases in fuel prices, purchasing managers have hinted that transportation surcharges are under consideration," said Nitin Paranjpe, an economist and supply chain faculty member at Wayne State's business school who analyzed the survey data provided by the Southeast Michigan chapter of the Institute for Supply Management.

"These raw material price increases may start to trickle down to the finished goods market, and we may start to see price increases at the retail level," he said.
The Business as Usual people will be displeased. So will the people whose wages haven't been keeping up with inflation, even if the annual rate is only 3%.

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