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$2/gallon gasoline: What does it mean? 3-05

03/22/2005

$2/GALLON GAS NOT SLOWING DRIVERS

Increased fill-up costs are not going to keep drivers off the road, says a Miami University geographer and auto industry observer.

"Volatility changes habits only marginally," says James Rubenstein, professor of geography. "Someone may decide to take one less trip. But it would take years of sustained high oil prices for there to be a major change in behaviors" in a nation where there are more vehicles owned than licensed drivers.

Likewise for demanding greater efficiencies from auto manufacturers, he adds. Analysts don't think we're headed into long-term high costs.

"Besides, adjusting for inflation, gas prices are lower than in the 1970s," says the author of Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry (2001) and other books.

Contact info: (513) 529-5025 or rubensjm@muohio.edu

WILL COSTLY GAS COST US ELSEWHERE?

It's not just consumers, but businesses that are paying higher petroleum and gas costs, reminds James Brock, Bill R. Moeckel Professor of Economics at Miami. "Higher costs for business threaten to raise inflation generally, as businesses have to pass on higher energy costs in the form of price hikes. This, in turn, may compel the Federal Reserve Bank into hiking interest rates to combat it -- which again, would slow economic growth," he says.

Reasons for the hike in gas prices are several, says Brock: oil mega-mergers and consolidation in the U.S. market providing "Big Oil" tighter and quicker control over price hikes; turmoil in the Middle East; China's explosive economic growth and demand for oil; and a decline in the value of the dollar (due to U.S. budget deficit and U.S. trade deficit), since OPEC prices its oil in U.S. dollars.

Among consequences of continued high gas prices, consumers will have less discretionary income for buying other things and it could worsen the value of the U.S. dollar, says Brock.

Contact info: (513) 529-2846 or brockj@muohio.edu

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