The Impact on U.S. Consumers of Every 1¢ Increase in Gas Prices: $1 billion

By Adam Freedman | March 19, 2012
  • What's Happening

    What's Happening

    The average price of gas in the U.S. topped $4.01 per gallon on March 15, the highest level in almost a year and up 15 percent from mid-December. The rise was due, in part, to an improving economy and also to growing demand due to worries of an oil supply disruption in the Middle East related to the Iranian nuclear standoff. According to a Bloomberg News story, Bank of America raised its forecast for this year to $118 a barrel for Brent crude "to reflect better-than-expected global economic conditions and tighter-than-expected supplies."

    Photograph by Mark Wilson/Getty Images

  • Why It Matters

    Why It Matters

    Since the U.S. still relies on imported fossil fuel, it is exposed to the volatility of oil prices, and sudden spikes can hit consumers hard and slow domestic growth. In 2011 Deutsche Bank estimated that a 1 cent-per-gallon increase in the price of gas translates to a $1 billion increase in household energy spending -- money that consumers would otherwise be spending on other goods and services. Put another way, a sustained increase in the price of gas to $5 per gallon -- an unlikely prospect, according to most analysts -- would wipe out almost half of the 2.2 percent GDP growth projected by economists for 2012.

    Graphic by Charlos Gary/Bloomberg

  • What It Means for Your Portfolio

    What It Means for Your Portfolio

    Oil-price spikes in the 1970s sent the U.S. economy into stagflation (slow growth and high employment combined with inflation) and contributed to the S&P 500 Index's negative after-inflation return. Recent research by the Milken Institute shows that today, due partly to the increasing use of natural gas instead of oil, the economy is less vulnerable to oil shocks. According to the Milken Institute, the number of barrels of oil consumed each day per $1 million of real GDP has fallen 58.4 percent since 1975. For stock market investors, that should mean less pain from prices at the pump.

    Photograph by Bettmann/Corbis

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