$4 Gas Will Return, Probably Sooner Than You Think
Oil prices are back on the upswing again, having hit $54 a barrel today. I expect to see a rush to push through an increase in the gas tax while prices are still low. The National Commission on Surface Transportation Infrastructure Financing has recommended a 10 cent increase in the federal fuel tax to help pay for repairs to deteriorating roads. $1.89 vs. $1.99 is alot easier to stomach than $3.99 vs. $4.09, so I think we’ll see this happen before prices hit those high levels again. Here in Massachusetts, the governor has been pushing for a 19 cent increase in the state gas tax and again is trying to push it through while prices are low. Again $3.99 vs. $4.28 is difficult to stomach.
So we’ve got some new taxes conspiring to push up prices at the pump. What else is happening? US commodies markets are predicting a huge jump in inflation of the US dollar. The fed has been pumping alot of money into the system to replace the money supply lost through decreased lending. This helps to stabilize the economy and is probably a good thing to do. The problem however, is when lending picks up again, it’s unlikely they’ll be able to pull that money back out very quickly or easily. More money in the system = more inflation.
Then we’ve got the stimulus, uh spending, package. While named a stimulus, it’s been widely reported that by the time the money from this bill actually gets spent the recession is likely to be over. So we’ve got the government spending huge amounts of money in an already growing economy. It doesn’t take a rocket scientist to figure out this will be inflationary.
Next, we’ve got the post recessionary economy. When we do pull out of this recession, people will naturally start jumping in their cars, flying on airplanes, and powering around on boats just like 2 years ago. The world didn’t have enough supply then, it’s unlikely to have enough supply a year from now either.
So we’ve got higher taxes, inflation, and supply constraints, every element of the perfect storm to send fuel prices back through the roof. Even the cheap gas while it lasts…
