There's no question the staggering rise in food and fuel prices will eat away at U.S. households' income in coming months.
But there is the question of how U.S. consumers will cope with those increased costs – especially when so many are already worried about their jobs, savings, investments and retirement.
With gas prices nearing $4.00 a gallon, and the consumer price index (CPI) in February for food-at-home up 2.8% from 2010, U.S. consumers are facing an economic double whammy. As food and fuel expenses make up a larger slice of household budgets, U.S. consumers have to evaluate just which goods are worth buying.
Montana resident Myriam Garcia some days has to choose between filling up her truck with gas or buying food.
"I can't really afford to drive to town," Garcia told The Associated Press. "If I can drive into town once a month, I'm lucky. Before, I had three boys so I was always creative with a limited amount of funds. Now I have to be even more creative because gas is so high."
The national average gasoline price was $3.537 on Tuesday, according to GasBuddy.com. Every $1 a barrel increase in crude oil prices means about a 2.5 cent increase at the gas pump, according to Chris Lafakis, an economist at Moody's Analytics. And every 1-cent per gallon increase in the average gasoline price will translate into $1 billion in extra expenses for consumers.
This means rising food and fuel prices are a fierce threat to consumer spending, which drives 70% of the U.S. economy.
"The American shopper was extremely cautious before. And now I'd say they are extremely worried," said Britt Beemer, president of America's Research Group (ARG). "What we are going to see happen is that consumers will try and cut back on all discretionary purchases, until finally they are going to have to make a decision at some point: what do I really have to give up?"
An ARG survey released Monday showed 62% of those surveyed listed rising gas prices as their biggest economic concern right now, and about 75% of Americans were shopping less due to higher gas prices.
Economists at Morgan Stanley (NYSE: MS) and Deutsche Bank AG (NYSE: DB) cut spending forecasts based on data showing U.S. households are using extra cash to boost savings. U.S. retailers fear this is a trend that will continue through 2011.
"The most vulnerable chunks of Consumerville are casual family dining, followed by the frequency of shopping trips and search for lower-priced items, especially end of season markdowns," Richard Hastings, a macro and consumer strategist at Global Hunter Securities, told CNBC.
This brings us to next week's Money Morning "Question of the Week": How are you dealing with high food and fuel prices? Have you changed your shopping or driving habits? Have you paid more attention to your household budget, or is your spending behavior unchanged?
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
Hidden Inflation: Why Prices Are Rising Faster Than You Think
Rising gas prices eating into shopping budgets
- The Associated Press:
Gas, food prices double whammy for rural families
- Packaging Digest:
Food retailers cope with more inflation than shoppers
Consumers Can Manage Higher Gas Prices for Now
U.S. Economy: Spending Cools as Food, Fuel Prices Climb
- Money Morning News Archive:
Question of the Week Feature