Forex Flash: Gasoline prices edge higher in US on winter freeze – Deutsche Bank

The US winter, which was the 20th warmest on record (according to National Oceanic and Atmospheric Administration), is now expected to grow colder later this month – which lifted natural gas prices for the third consecutive day yesterday to a 3-month high. The national average regular unleaded price is around $3.70/gallon at the moment, off the recent highs of $3.79/gallon but still materially higher versus the lows of $3.22/gallon seen halfway through December of last year.

Indeed, our US economists are keeping a watchful eye on this as the rise is also occurring at the same time that households are adjusting to a 2% increase in payroll tax. Given the focus on the domestic recovery, this is certainly a theme worth monitoring as higher energy prices effectively impose a 'tax' on disposable income.

“In trying to quantify the impact, our US economists' have determined that, as a rule of thumb, a one cent change in gasoline prices reduces annual non-energy consumption by roughly $1billion. At gas prices of $4.25/gallon, their growth forecast begin to deteriorate appreciably. They believe if prices are sustained in the vicinity of $4.25-$5.00, their growth projections would likely have to be significantly reduced. Above $5.00/gallon, they see growth slowing towards stall speed and recession risks become acute.” Writes Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.