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Q&A: UAlbany Professor Skeptical National Gas Prices Will Reach $5

Gas prices rising about $4.50 a gallon could pose a threat to the economic recovery, according to UAlbany Distinguished Professor Kajal Lahiri.

ALBANY, N.Y. (April 9, 2012) -- The price of gasoline continues to rise dramatically, raising concerns that U.S. economic recovery will be derailed. University at Albany Distinguished Professor of Economics Kajal Lahiri discusses why the price of gasoline has spiked and when American drivers may expect some relief.

Q. Why are prices at the pump continuing to rise, and how high are they headed?

A: As the growth prospect in the U.S. picks up, and the BRIC (i.e., Brazil, Russia, India and China) countries continue to grow, upward pressure on gas price is inevitable. The current political uncertainty surrounding Iran and the Middle East has also increased the spot and future expected price of crude oil in the global market. A recurrent seasonal pattern in oil price spike between February and March is also a factor. In the short run, the prices are largely determined by expectations, which are currently heading north. We can’t do much about it.

However, I would rate the odds of reaching $5 a gallon by this summer at less than 30 percent.

UAlbany Distinguished Professor Kajal Lahiri
UAlbany Distinguished Professor Kajal Lahiri

Q. Does the spike in gas prices have the potential to derail the economic recovery?

A: I doubt it, however prices in excess of $4.50 a gallon have been shown to seriously affect domestic consumption, a trend we have seen in recent years. If the economy keeps improving at its own momentum, particularly on the employment front, another recession is highly unlikely. There is enough steam in the market place.

Q. Where is the economy?

A: No one is expecting a real U.S. GDP growth in excess of 2.5% in 2012. Currently there is reasonable excess refinery capacity at home and abroad, so given that it is a Presidential election year, I expect more supply to come through during the year.

The Transportation Services Index that we created at UAlbany in 2000, and is currently put out by the U.S. Department of Transportation every month is showing a steady but slow growth. So I am optimistic about continuing (albeit slow) growth of the U.S. economy.

Q. Is the job market actually improving?

A: Yes, clearly and finally hiring in the private sector has started to pick up. The jobless recovery, like that during the recessions of 1990 and 2001, is turning into a stage of the uptake where the firms cannot sustain their growth any more without hiring. Though belated, this trend is also finally happening on Wall Street, as well.

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