The surge in retail gasoline prices to $3.80 per gallon, from $3.40 only a month ago, will put more pressure on households who are already struggling to cope with the expiry of the payroll tax cut. The only good news is that the most recent dip in wholesale prices suggests that retail gasoline prices may now have peaked. Admittedly, retail sales growth held up remarkably well in January given that the payroll tax hike reduced incomes by $110bn annualised. But the full impact may take several months to feed through. As it stands now, we still anticipate a 2.0% annualised gain in first-quarter GDP, but partly due to a reversal of the drag on growth from inventories and defence spending in the fourth quarter of last year. We forecast that GDP will increase by 2.0% in 2013.
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