How Rising Gas Prices Will Affect Your Wallet Long-Term
Gas prices are rising -- up 4 cents from a week ago to $3.58 per gallon as a national average, according to AAA. A year ago the national average for a gallon of regular gas was $2.80. The increase is enough to hit the average consumer hard in the wallet, but not as hard as in July 2008, when the national average hit $4.11 a gallon.Some experts forecast prices to increase this year to $4 a gallon and up to $5 a gallon next year.
At what price will drivers start leaving their cars in the garage and find other ways to get around, or at least buy a car that gets good gas mileage?
Price spikes from political turmoil in the Middle East or elsewhere often lead to short-term behavior changes, analysts told WalletPop. They include driving less, using public transportation more and buying fuel-efficient cars.
Gradual gas price increases don't change the behavior of drivers in the types of cars they're driving, but sharp rises change their habits, such as the 2008 spike that led to more compact cars being sold, said Lacey Plache, chief economist at Edmunds.com. That surge is happening again, with interest in small cars increasing, according to Edmunds. Shoppers considering the Prius have increased 30% this year, Plache said.
Gas prices have increased gradually since October 2010, Plache said, with a monthly rise of 3% to 4%. But a shock-type increase of 7% to 8% has been happening the past two months, much like in the summer of 2008, she said. That could lead to more long-term habits changing, although a sudden drop in prices could send people back to their guzzling ways, she said.
"Once gas prices change, behavioral changes change back," she said.
The summer driving season is months away, but consumers should prepare for high gas prices this summer by saving money now, said Ken Kamen, president of Mercadien Asset Management. They should plan for a 20% or greater increase in gas and food costs, budgeting for gas to hit $4.50 a gallon this summer. If it doesn't they'll be pleasantly surprised next winter.
Compared to what the rest of the world pays for gas and to inflation, gas prices in America are cheap, or at least not as bad as we think, said Gerry Keim, chairman of the Management Department at the W.P. Carey School of Business at Arizona State University.
Most of Europe pays two to three times as much for gas as Americans do, because of higher taxes on cars and gas, and uses the money to fund public transportation, Keim said.
When adjusted in real terms for inflation, Keim said, the price of gas is only slightly higher than it was at its peak in 1983, when gas was $1.24 a gallon and the unemployment rate was 9.7%.
Price spikes lead more people to be aware of fuel economy. The Toyota Prius is the most fuel-efficient car sold, turning 40 mpg into the new standard. "All of a sudden, 40 has become the new 30," Keim said of miles per gallon. The Hyundai Elantra gets 40 mph without batteries or other hybrid add-ons, and next year Honda is introducing a few models that get 40 mpg.
While it's difficult to see three to five years out what oil prices will be, Kamen said that for the next one to two years they shouldn't be higher than where they are now -- $104 a barrel on Monday. Producing more oil is the best way to lower prices, he said, and it can be done with more oil available in Canada, the North Sea and off the coasts of the United States and Brazil.
"We're supporting oil drilling off the coast of Brazil, yet we won't allow it off our own coasts," Kamen said of the Gulf drilling moratorium.
That may be when you know gas prices will be dropping: When you see more oil rigs off the coast of California.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area.