More Pain at Pump: Gasoline Prices May Surge Higher

Wednesday, 13 Jul 2011 08:21 AM

By Michael Carr

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Since Memorial Day, the price of gasoline at the pump has fallen. After reaching almost $4 a gallon, prices fell about 10 percent and even though they were up about 30 percent from a year ago, most analysts focused on the short-term drop.

Almost unnoticed over the past two weeks, the price of unleaded gasoline futures has shot up by about 15 percent.

This is very bad news for consumers.

According to a study by the Energy Information Administration, pump prices are generally about 70 cents higher than the futures prices and the futures market leads retail prices by about a month.

If historic averages hold, gasoline prices should be about $3.80 on average going into the Labor Day holiday weekend. A price jump of this size, takes about $200 a year out of the average family’s budget.

Other commodities have also shown double-digit gains in the first weeks of July. Corn, sugar, and lumber are also up in the past two weeks. Silver seems to have found at least a short-term bottom after its dramatic decline.

Official inflation numbers are falling, but real prices aren't. Inflation assumes that consumers buy the same basket of goods each month, but consumers are probably buying less, so lower inflation numbers are signaling decreased demand in the short-term.

Futures traders are betting on even higher prices in gasoline and other commodities. The silver lining in higher futures prices is that they are a sign of economic strength. The markets are forecasting better employment numbers later this year, and higher inflation in the next year.

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