Mellody Hobson: Gas Prices Not Going Down

ByABC News via logo
May 1, 2006, 7:48 AM

May 1, 2006 — -- The current national average for a gallon of gas is $2.92, according to AAA, nearly 70 cents higher than the price one year ago.

With relief at the pump nowhere in sight, Mellody Hobson, "Good Morning America's" financial contributor and president of Ariel Capital Management, weighed in on the future of gas prices in America.

The Wall Street Journal is currently asking people what they think gas prices will be on July Fourth, and, so far, most people are guessing between $3 and $4. What do you think?

It probably won't go down much from between $3 to $4 at least over the next several months. We have come to think of $3 gas as a momentary spike caused by world affairs or problems stemming from Katrina hitting the Gulf Coast oil industry hard. But the truth is that with China and India competing with U.S. consumers for gas, prices are not going to keep dropping after these $3 spikes. What's going to happen is that $3 is going to start being the price floor. We see that all the time in Europe, even in places that produce oil. It's going to start becoming the norm in the United States too.

What about the pain we may feel indirectly? Are rising gas prices going to make every product that's shipped cost more?

Most likely, yes it will. Right now, it does not seem that higher gas prices are being reflected in higher prices for other commodities, but that usually happens. There are some rumblings that are unsettling. Wal-Mart, which can track its customers' behavior with incredible precision, says it believes people are having a lot more problems digging into their wallets because they are paying so much for gas. This comes as interest rates are on the rise too, which means those who have financed their lifestyles with borrowed money are having a tougher time paying that money back. Both those things are cause for concern.

So if this has larger economic repercussions, what about the money in 401(k)s and retirement plans that so many people have invested in Wall Street? Wall Street has been doing great, with the Dow rising nearly 650 points since the beginning of the year. Is it in for a rude awakening?

I think it's running on fumes, to use a gasoline analogy. I think that with gas prices rising, and staying high, there are going to have to be some adjustments made. So far the economy has not really factored in the rising cost of gas, but that time will come. As that hits Main Street, Wall Street will feel the aftershocks. That will be amplified by interest rate hikes.

Mellody Hobson, president of Ariel Capital Management in Chicago (www.arielmutualfunds.com) is "Good Morning America's" personal finance expert.