Surge in gasoline prices comes at just the wrong time

As if households didn't already have enough to worry about with the expiry of the payroll tax cut at the start of this year, they suddenly find themselves having to cope with a sudden spike in gasoline prices and delays in receiving their tax rebates. Retail gasoline prices jumped from $3.40 a gallon at the end of January, to $3.60 last week and will probably climb to $3.75 this week. That increase could trigger a 0.4% m/m decline in real consumption, because it leaves households with less money to spend on other goods and services. Coming on the heels of the increase in payroll taxes in January, the outlook for first-quarter consumption suddenly looks even bleaker. We currently anticipate that first-quarter consumption will eke out a 1.0% annualised gain, but the downside risks to that forecast are mounting.