Why The Drop In Energy Prices Is Extremely Encouraging For Economic Growth

We all know rising gas prices hurt nearly everything in the U.S., from Wal-Mart, to consumers, to President Obama’s approval ratings.

But now, they’re falling sharply, down 2.8% from their high of $4.02 in May according to Deutsche Bank. That indicates the unusual early surge we saw this year may not persist and slam summer drivers.

From Deutsche Bank’s Carl Riccadonna:

First, prices typically peak roughly 20-25% above the December level in the prior year, which implies a peak of $3.60-3.75 for the current year. Hence, the run-up in prices during the February to May period clearly broke with the typical historical pattern. The second point is prices ordinarily do not begin to ease until July, so we will watch to see if the recent price relief is sustained. While we estimated a “tipping point” of $4 per gallon earlier this year, prices need to remain at this threshold for an extended period (i.e. quarterly average), not merely touch it briefly.

Note that the latest number for gas prices indicates the early climb for 2011 is at an end, that we’re falling back in line with projections, and that $4 gas will not be sustained, on average.


[credit provider=”Deutsche Bank”]

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