The story we’re watching this week relates to something Americans are all too familiar with: rising gas prices. We aren’t the only ones facing a financial pinch at the pump. China on Monday raised its heavily regulated gas prices by about 6 percent as it grapples with the rising cost of crude oil. The Wall Street Journal reports that the average price of gas in China is now $4.42 a gallon.
It was the second time this year that China has raised prices on gas. Analysts told Xinhua, the official Chinese news agency, that the government was comfortable raising gas prices because inflation is otherwise low. The hike will help compensate refiners for most of the recent rises in crude oil costs, which jumped more than 10 percent during February, and help maintain production.
“We need to maintain steady and relatively fast economic growth — development is the key for resolving all problems in China,” said Zhang Ping, chief of the Chinese National Development and Reform Commission, told Reuters.
The increase is not considered big enough to choke oil demand in the world’s second largest oil importer, industry watchers said.
Still, the steady increase in the cost of gasoline around the world raises fears of another economic slowdown. Christine Lagarde, the head of the International Money Fund, on a trip to China and India said that emerging market economies need to carefully watch oil prices to avoid “fallout” from advanced economies. Consumers in developed nations often react to rising gas prices by spending less on other things.
Part of the reason gas prices are rising relates to tensions in the Middle East, particularly over Iran’s reaction to sanctions aimed at ending its nuclear program. Iran has threatened to close the Straits of Hormuz, for example. China continues to buck those sanctions, buying oil from Iran.
But a bigger reason for increasing gas costs is people. Andrew Sentance of the Financial Times said that “demand is being driven up by the activities of the 6.8 billion people now living on the planet, with the vast majority of them participating in the global economic system and aspiring to a higher standard of living. We have never been in this situation before.”
Here in the U.S., the American Automobile Association (AAA), which each day surveys prices at gas stations nationwide, on Monday reported that the average price in the U.S. was $4.30, up from $4.10 a month ago and $3.95 a year ago. But Americans have it pretty good compared to some other places, Europe in particular, where the price of gas is at least double what it is here, and even more in places like Greece and the Scandinavian countries. Din Side, a Norwegian site that monitors gas prices, reports that the price of gas in Oslo is about $9.25 a gallon.
Most Europeans, among them the British, the Irish, the Germans, the Italians and the French, pay somewhere between $7.50 and $8 per gallon, according to the International Energy Administration. European nations often tax fuel heavily, largely to encourage conservation.
At least for now, the U.S. economy seems safe. Many observers say that $5 is the magic — or un-magic — figure when the slow but steady improvement in the U.S. economy could come to a screeching, jolting, terrible stop. We sure hope not.