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Gasoline prices, alongside other energy commodities, are on the rise and further increases are just over the horizon. Now, it seems that everyone, from central bankers in charge of price stability to traders looking to make a profit from arbitraging commodity futures and politicians seeking to turn inflation into a campaign issue, is taking notice.
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"The recent resurgence in the price of crude oil has led to speculation that, in a repeat of what happened at this time last year, a spike in energy prices could undermine real economic growth just when the recovery appears to be gathering momentum again," Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note to clients Friday.
Here are six things to know about the recent rise in energy costs:
1. It's Not Just About the Pump
The reason energy prices are making the headlines now is that retail gasoline prices, which had lagged the increase in crude prices from earlier in the year, are beginning to perk up considerably.
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On Friday the average price in the U.S. for regular unleaded was $3.647 per gallon, with customers on the West Coast seen digging in their pockets for more than $4 per gallon -- a psychologically significant mark -- at the pump. The increase has been swift: Customers were paying nearly 30 cents less per gallon -- $3.379 -- a month ago, according to data from the AAA Daily Fuel Gauge Report.
Now, even natural gas is slated to rise. The price of the fuel had recently dropped on an excess of supply, a result of previously inaccessible deposits made viable through hydraulic fracking. But not anymore.
"Our U.S. economics team raised their growth outlook for this year, implying an improvement in U.S. natural gas demand in addition to higher use from coal-gas switching. Meanwhile, supply cuts are expected to start setting in from the second quarter," wrote Michael Lewis, a research analyst at Deutsche Bank, in note Friday.
2. It's Bound to Get Worse
Better-than-expected economic storylines out of the United States and China mean a much-expected dip in demand from those countries might not materialize in 2012, driving up prices. Meanwhile, "Iran's pre-emptive move to halt oil exports to the UK and France added to expectations that buyers faced fresh impetus to scramble for alternatives," said Lewis.
In different times, other countries would up production to avoid the shortfall, but according to Sonsoles Castillo, head economist at Spanish bank BBVA, current "spare capacity is not enough to absorb large supply shocks (Iran has the second largest spare capacity but no demand due to sanctions), with inventories much tighter than thought (OECD inventories are well below the five-year average)." Political factors in countries like Sudan, Syria and Yemen also have caused output to decline by more than 1 million barrels per day.
3. But it Won't Be as Bad as in 2008
Since rising energy costs affect downstream inflation, sudden spikes can hurt consumer confidence and slow down GDP growth. The question many are now asking is whether the current surge in prices will have damaging effects.
Economists are split on this point, though many point out the current price shock is much more gradual than those seen historically, including in 2008, the last time gasoline was over $4 a gallon in the United States.
