Beware the Gas Price Boomerang

US consumers are celebrating the lowest gasoline prices in more than a year. That’s great for families whose incomes were whittled away by ballooning fuel bills earlier this year, but it highlights the inflationary dilemma facing the world’s biggest economy.

- Lisa Abramowicz

Today an American family filling up their 16-gallon tank would pay about $52.20, versus $80.20 back in June. At one fill-up per week, that’s $112 of extra spending money a month. Americans are using that windfall on everything from concert tickets to weekend getaways. The Dec. 1 personal spending report showed that while goods inflation has fallen to 7.2% from 8% a year earlier, services inflation rose to 5.4% from 5.3%.

And lower gas prices are making US residents more confident in their outlook for the economy. The latest University of Michigan Consumer Sentiment survey was stronger than expected, largely because drivers are paying less at the pump. Fewer respondents expected those prices to rise further, and a greater proportion expected them to stay the same.