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Originally published April 11, 2011 at 9:36 PM | Page modified April 12, 2011 at 12:15 PM

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Americans apply brakes as gasoline prices soar

Soaring gasoline prices are starting to take a toll on American drivers. People are pumping less into the tank, reversing what had been a steady increase in demand for fuel. For five consecutive weeks, they have bought less gas than they did a year ago.

Up, up and away

Averages for regular unleaded for Seattle-Bellevue-Everett:

CURRENT

$3.88

A WEEK AGO

$3.82

A MONTH AGO

$3.68

A YEAR AGO

$3.00

Source: AAA

Information

Track local gas stations: www.seattlegasprices.com

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Soaring gasoline prices are starting to take a toll on American drivers.

People are pumping less into the tank, reversing what had been a steady increase in demand for fuel. For five consecutive weeks, they have bought less gas than they did a year ago.

The bigger question, economists agree, is what happens if prices continue to increase.

Prices for a gallon of regular unleaded gas are topping $4 at more service stations nationwide, revisiting bleak territory of three years ago, when the average price reached a peak of $4.11 nationally and $4.30 in the Seattle-Bellevue-Everett area on July 17, 2008, according to figures provided by the Oil Price Information Service and AAA, respectively.

Drivers bought about 2.4 million fewer gallons for the week ending April 1, a 3.6 percent drop from last year, according to MasterCard SpendingPulse, which tracks the volume of gas sold at 140,000 service stations nationwide.

The last time Americans cut back so much was in December, when snowstorms forced many people to stay home.

Before the decline, demand had been increasing for two months. Some analysts had expected the trend to continue because the economic recovery was picking up, adding 216,000 jobs in March.

"More people are going to work," said John Gamel, director of gasoline research for MasterCard. "That means more people are driving, and they should be buying more gas."

Instead, about 70 percent of major gas-station chains say sales have slid, according to a March survey by the Oil Price Information Service. More than half reported a drop of at least 3 percent, the sharpest since summer 2008.

People continue to take a hit, even as they conserve.

Gas is 32 percent more expensive than it was in April 2010.

In all, Americans are paying roughly $340 million more per day to fill up than they did a year ago.

Most analysts are sticking to forecasts of a high of $4 a gallon, though some have predicted $5.

Economists are trying to determine the longer-term economic impact if prices remain high.

"Once we cross the $4 threshold, the pain will become more palpable, and it is going to show up more noticeably in the reduction in future consumer spending," said Bernard Baumohl, chief global economist for the Economic Outlook Group.

He predicted "spending on discretionary goods will be diminishing as the price of gasoline keeps moving higher."

He also noted that the government's retail-sales figures for March, a broader measure that also takes into account more sectors and categories, will be released Wednesday.

"I would not be at all surprised that nongasoline purchases are beginning to suffer," Baumohl said.

The rise in gasoline prices began to gain steam after political turmoil surged in the Middle East in February. Commodity prices soared amid heightened concerns over supply disruptions, especially from Libya, even though other producers offered to make up for any shortfall.

"Money has been pouring into all commodities at an incredible pace for the last four months," said Tom Kloza, chief oil analyst with the Oil Price Information Service.

"I think we have hit the tipping point," he said of gasoline prices. "The sweet spot this year for economic growth without damaging demand was probably $3.25 to $3.75."

Some drivers already are hunting for cheaper gas, sometimes with the help of a smartphone app.

Others say they are checking out bus and train schedules, reconsidering mass transportation or trading in SUVs for more fuel-efficient models.

Economists said they expect Americans to make fewer nonessential trips by car, particularly over Memorial Day or for summer vacation, or would consolidate more trips for work with errands.

"People just don't have the elasticity in their budgets," said Robert Sinclair Jr., a spokesman for AAA New York.

Kim Cramer, who works for Radio Flyer in Chicago, has started walking and carpooling more. She also has learned to be choosy, buying gas in suburbs, where she's learned she can save as much as 20 cents a gallon.

"I try to fill up anywhere besides the city," she said.

Americans also appear to be turning to smaller, more fuel-efficient cars.

Sales of the Hyundai Sonata and Elantra soared 55 percent in March. Meanwhile, sales of Chevy's Suburban SUV dropped nearly 24 percent.

The decline is somewhat puzzling because Americans typically curb their driving only as a last resort, after sacrificing other forms of discretionary spending, such as shopping for new clothes or going to movies, concerts and restaurants.

Even if that demand keeps falling, though, it probably won't be enough to force the price down. That's because worldwide demand for crude oil continues to rise.

Global demand for oil is about 87 million barrels per day, matching its peak from 2007. It is expected to grow to more than 88 million barrels a day by year's end, with most of the increase coming from China.

National gas prices
Average for regular, by state:
State Price
Alaska $4.130
Alabama $3.634
Arkansas $3.622
Arizona $3.615
California $4.159
Colorado $3.559
Connecticut $3.949
District of Columbia $3.935
Delaware $3.695
Florida $3.776
Georgia $3.643
Hawaii $4.422
Iowa $3.717
Idaho $3.601
Illinois $3.994
Indiana $3.820
Kansas $3.657
Kentucky $3.709
Louisiana $3.642
Massachusetts $3.688
Maryland $3.762
Maine $3.763
Michigan $3.856
Minnesota $3.820
Missouri $3.618
Mississippi $3.605
Montana $3.587
North Carolina $3.702
North Dakota $3.772
Nebraska $3.811
New Hampshire $3.650
New Jersey $3.586
New Mexico $3.677
Nevada $3.861
New York $3.935
Ohio $3.788
Oklahoma $3.640
Oregon $3.815
Pennsylvania $3.750
Rhode Island $3.750
South Carolina $3.582
South Dakota $3.710
Tennessee $3.608
Texas $3.680
Utah $3.574
Virginia $3.689
Vermont $3.770
Washington $3.878
Wisconsin $3.836
West Virginia $3.796
Wyoming $3.494
Source: AAA

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