Gas Prices Should Peak in July and Then Decline
With gasoline prices creeping up six weeks in a row, retail experts are fretting that consumers will start feeling financially drained and put lockboxes on their wallets when buying clothes.
“It is just one more finger in consumers’ pockets pulling out discretionary income,” said Ken Perkins, president of Retail Metrics, a retail-research firm in Swampscott, Mass. “It is going to pinch low-income consumers and people who have already been hit by job losses, working more hours for less pay and paying more for health care.”
But several analysts and observers believe that creeping pump prices, now between $2.83 to $3.02 a gallon for regular unleaded, are temporary and will start inching downward this fall.
“We expect crude-oil prices to come down in the second half of this year, which will lead to some moderation in prices,” said Sara Johnson, the managing director of global macroeconomics at forecasting company IHS Global Insight in Lexington, Mass.
She foresees gas prices shrinking to $2.25 a gallon in the third quarter and declining more in the fourth quarter to $2.13 a gallon. “We just don’t believe the current price levels are sustainable,” she observed.
Indeed, predictions by the U.S. government’s Energy Information Administration see gasoline prices peaking in July, rising another 8 to 10 cents, before they start to decline.
The rise in gasoline prices is being attributed to the weakening U.S. dollar compared with the European euro and the British pound, meaning oil producers charge more for their petroleum, which is priced in dollars. And many believe the U.S. economy is starting to rebound and will lead to more gas consumption.
But the International Energy Agency shows that worldwide demand is down 2.6 million barrels a day from last year, mostly due to the slower global economy and the fact that people are driving less in the United States and elsewhere.
While gas prices have climbed steadily from their low of $1.65 a gallon in December, many experts said gas is still a bargain compared with last year, when it was around the $4-a-gallon mark.
“Despite the fact that [gas] prices have rebounded from their low, the average household will be saving $1,100 this year compared to last year,” IHS Global Insight’s Johnson said.
Last summer, high gas prices not only affected apparel purchases but the way people conducted their business. Showroom reps spent less time out on the road and made fewer trips. People were carpooling to work and taking fewer trips to the shopping mall.
At the same time, store buyers were more reluctant to go to fashion markets and shows, preferring that salespeople visit them.
Michelle Peschel of The Penthouse showroom in the Lady Liberty Building dramatically changed the way she traveled last summer. Instead of flying to Atlanta, renting a car and driving up the coast looking for new accounts, she kept her samples light to avoid luggage charges and only visited retailers with whom she had appointments.
Sales reps haven’t had to resort to that kind of behavior this year. And retailers are hoping that consumers won’t be taking any drastic measures to worsen stores’ revenues. In May, retail sales across the country dipped 4.6 percent. The International Council of Shopping Centers in New York predicts that June sales will decline 4 percent to 5 percent.
“I don’t think consumers are making rising gas prices a major impediment as they did two years ago,” said Scott Krugman of the National Retail Federation in Washington, D.C. “They have other things on their minds, such as where home prices are right now.”
But Britt Beemer, the founder and chairman of America’s Research Group in Charlotte, S.C., which does extensive consumer surveys with thousands of shoppers, said consumers have their eyes on gas prices. “Most consumers said they weren’t going to get concerned about gas prices until it got close to $3 a gallon. And we’re just about there,” Beemer said.
He said there are three groups of consumers: the 38 percent who are concerned about their jobs, the 50 percent who say they need to work another three to seven years longer to make up for lost investments and shrinking pension plans, and a hefty portion of people who say they have to wait for another round of income-tax refunds to get back on their feet.
