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Saturday, May 07, 2011

No Surprise: Gasoline prices expected to fall sharply

by Calculated Risk on 5/07/2011 07:15:00 PM

A brief comment: If oil prices stay at the current level, gasoline prices will probably fall 30 cents per gallon or more over the next few weeks. This AP article says some analysts expect a "drop of nearly 50 cents" by June.

I'll be checking GasBuddy.com. They are already showing a 2 cent decline since yesterday in my area (not much, but a start). Since I've felt that oil and gasoline prices are the biggest downside risk to the economy, this is welcome news.

The preliminary Reuter's/University of Michigan's Consumer sentiment index for May will be released next Friday and that is too soon to see the impact of falling gasoline prices. But the final index for the month will be released on May 27th, and that might show a nice rebound in confidence if gasoline prices fall sharply.

Professor Hamilton has been discussing the impact of oil prices on the economy: Will high oil prices bring a new recession?. Hamilton noted: "[O]nce energy expenditures get above 6% of average consumer spending, we start to see significant changes in spending patterns. We crossed that threshold in March ..." It is not clear that oil prices have declined enough to put the energy expenditures below 6%, but it will probably be close.