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Tuesday
Feb082011

Rising Gas Prices Slam Consumer Sentiment

Photo Courtesy - Getty Images(NEW YORK) -- Soaring gasoline prices slammed consumer sentiment into reverse this week, threatening the slow recovery in economic views that’s been under way.

With gas now at a record high for February in Energy Department data dating back to 1990, the weekly Consumer Comfort Index (CCI) dropped by an unusually steep 5 points to -46 on its scale of -100 to +100. It’s dropped that far only 36 times in more than 1,300 weeks of ongoing polling since late 1985; this shift erases an equally unusual 5-point gain in early January.

It’s likely no coincidence that the change in sentiment follows the federal government’s report Monday that gas has jumped to an average $3.13 a gallon, up steadily from $2.74 six months ago, $2.65 a year ago and $1.89 two years ago this month.

The portent is not a good one. Gas prices tend to drop in winter, when demand is down, and rise in summer, when more Americans hit the road. Gas last approached this wintertime level in February 2008 -- on its way to a record high of $4.11 the following July.

A repeat could be devastating to consumer sentiment.

Although the CCI and gas prices don’t always move in tandem, they’ve correlated significantly -- meaning that as gas prices go up, confidence tends to decline. And that relationship strengthens when fuel prices are rising: From February 2007 to July 2008, as gas soared from $2.19 to $4.11, the CCI tanked from  -1 to -41.

That relationship suggests that confidence would be in a better place now were gas prices not rising -- with this week’s CCI a warning siren for the slow, tentative recovery of late.

Copyright 2011 ABC News Radio 

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